The S&P 500 E-mini contract has broken above the 50-Day EMA as the “hopium rally” has continued on Tuesday. There are a lot of traders out there hoping that the Federal Reserve is going to bail everybody out, and as economic numbers continue to drift a little bit lower, the idea is that given enough time, the Fed is going to have to pivot. 

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They are nowhere near doing that, and it’s also worth noting that volume on these rallies tends to be much lower than breakdowns. In other words, this is a simple bear market rally.

True, bear market rallies do tend to be very vicious, but they also ended very abruptly.

• Trading a bear market is much different than trading many other types of markets, because you have to be in and out and have to be somewhat nimble.
• Anybody can buy and hold a hot stock over the course of a couple of years, but when it comes to trading on the short side, it is a completely different animal altogether.
• You have to be willing to take a few punches in the face before you collect significant profits.

While the last 3 or 4 trading sessions have been relatively impressive, the reality is that it is but a blip on the radar when it comes to the longer-term chart. It’s not to say that we can’t go higher, it’s just that it’s more likely than not that we will see sellers on the first signs of exhaustion. The 3900 level looks to be rather important, so that might be as far as we go. Furthermore, the first time that we get news from the Federal Reserve will be the death knell for the rally. I suspect that a lot will be put into the interest rate statement coming out next Wednesday, and that could be another shock to Wall Street. It’s a bit amazing that no matter what the Federal Reserve says, the same narrative gets thrown around every few weeks, only to see it get smashed in the face yet again. The Federal Reserve is nowhere near conquering inflation, and even if they did slow down the rate of hikes, the reality is that they will have to sit at higher interest rates for quite some time. With that being said, we do not have a signal to start shorting yet.

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