We now are sitting right around the 200-Day EMA, which of course will attract a certain amount of attention.

• The S&P 500 had a wild day during trading on Thursday as the CPI numbers came out as anticipated.
• Initially, the reaction was quite negative, but we ended up seeing the buyers come back into the market and pick up the opportunity when it occurred.
• We now are sitting right around the 200-Day EMA, which of course will attract a certain amount of attention.
• With that in mind, I like the idea of watching the next day or 2 rather closely, because we are sitting right underneath the 4000 level, and a major trendline that both come into the picture right around the 200-day EMA.

I guess the question at this point is whether we will have the momentum to punch through all of that. If we do, that would be a very bullish turn of events, perhaps opening the S&P 500 up for a move to the 4100 level. Whether or not that happens will have to wait, but it’s worth noting that Monday is a bank holiday in the United States, so Friday could be very interesting, to say the least. If people are willing to hang on to the stock going into a long weekend, that’s a good sign. In that environment, one would have to think that we really have a lot of momentum underneath the market.
 

Avoid Shorting the Market

On the other hand, if we turn around and break down below the bottom of the candlestick for the trading session on Thursday, that opens the possibility of testing the 3900 level, which also features the 50-Day moving average. That could offer a significant amount of support, but I think it’s broken down, then you are looking at the 3800 level.

There have been murmurs of the 25-basis point hike in February instead of 50 basis points, and that’s part of what has the market on fire now. I think we’ve got a situation where you certainly don’t want to short this market without some type of signal. We are in the right area to do that; we just don’t have the setup quite yet. I’m looking for signs of exhaustion that show that there’s no real confidence in this market. Right now, it does not look like we have that going on.

(Click on image to enlarge)

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