I think this is a market that will probably continue to see a lot of negative behavior.
The S&P 500 saw the futures market all over the place as the Tuesday session showed a little bit of a relief rally, as the CPI numbers “were not as bad” as anticipated. That being said, it is not a smart reason to jump into the market, as most retail traders may have learned sometime during the day. We gave back gains rather quickly, and it looks like we are going to continue to squeeze between a couple of major moving averages.
It is worth noting that the 200-day EMA underneath can offer support and in fact it even did during the trading session. We dipped below it, only to turn around and reach the 50-day EMA. The 50-day EMA is an indicator that a lot of people pay close attention to, and as you can see we have pulled back quite drastically from it. This looks like a market that is ready to pull back, so if we break down below the lows of the trading session on Tuesday, then it is likely that the market will look toward the 4300 level, perhaps down to the 4100 level.
Keep in mind that there are a lot of noisy factors out there that will continue to cause issues, not the least of which will be whether or not the Federal Reserve is going to continue to tighten, or if they are going to step back. Wall Street is hoping that Jerome Powell will save them all, and that is where we have seen a lot of bullish pressure. On the other hand, if he does not come out to save Wall Street, then it is very likely that this market will fall. In that scenario, the fall could be quite significant, and it could be rather quick.
Trying to rally the market on “less bad news” is always foolish, and I think a lot of people probably learned that lesson early during the session. If we were to break above the top of the negative candlestick on Monday, then it is possible we could go to look at the 4585 level, where we had formed a massive double top previously. Nonetheless, I think this is a market that will probably continue to see a lot of negative behavior.