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Volatility breeds negativity.
- The S&P 500 fell Friday after initially trying to break above the 4000 level.
- By doing so, it shows just how little confidence there was in the market.
- We will continue to see a lot of negativity out there.
- The fact that traders would not hang on to futures contracts heading into a weekend tells you that they are not that confident.
Waiting on the Federal Reserve
Furthermore, keep in mind that the Federal Reserve has a meeting on Wednesday that will determine what happens next. Quite frankly, most of the world expects them to be hawkish, so now it’s going to come down to the overall tone of the statement or if they shock the market and raise interest rates by a hundred basis points. The next couple of days could be rather noisy, but this tells us just how little the market believes the rally. The rally has been done with relatively low volume, so one would also have to think that there is quite a bit of suspicion.
If the market was to turn around and break above the 4000 level, then we could see a move to the 4200 level. However, after the action on Friday, it looks very likely that we are going to struggle to make that move. It’s not until we break above the 4200 level that I would consider this a market that was ready to turn around and enter a longer-term uptrend.
If we break down below the 3900 level, that could bring in a fresh wave of selling, and that is very possible between now and the Fed meeting. This is because a lot of people will be looking to collect any profits that they have made, or perhaps try to front run the announcement and statement. Because of this, I suspect that we have more downward pressure ahead of us. Any short-term rally has to be looked at with suspicion. A move below the 3750 level opens up significant selling pressure to send this market much lower. I do think that volatility will become a major problem, but that only leads to more downward pressure over the longer term. After all, nobody wants to put a lot of money into the market when you struggle to see any type of clarity. Volatility breeds negativity.
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