Attempts to Stabilize on Wednesday

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The attitude of the market has been shaken quite hard during the day, and it looks like we are kicking off the next leg lower, all we need is just a little bit of a push.

The S&P 500 had a relatively quiet trading session on Wednesday as market participants collect their thoughts after the massive Tuesday selloff. The massive candlestick and selloff that formed on Tuesday is not exactly something you expect to see happen in a vacuum, so it is probably only a matter of time before we start selling again.

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Furthermore, the economic situation is not good for stocks in general, as the Federal Reserve is set to tighten monetary policy, and of course, we also have the situation where interest rates are starting to get strong enough that a real rate of return is possible sooner or later. That makes bonds much more attractive because you can get rid of a lot of trouble in your portfolio by simply owning paper.

Looking to Fade Rallies

If we break down below the 3900 level, the S&P 500 will almost certainly drop another 100 points rather quickly. Breaking down below the 3800 level could be a very ugly turn of events.
It’s quite astonishing to me how many people out there are willing to push the bullish narrative, at least until you start to think about the fact that those are the people selling stocks to the public.
The attitude of the market has been shaken quite hard during the day, and it looks like we are kicking off the next leg lower, all we need is just a little bit of a push.

As far as rallying is concerned, at the very least you need to see the market take out the 50-Day EMA, and even then, you still must deal with the 200-Day EMA which is sitting just below the 4200 level. It’s quite astonishing to me that there are still people out there willing to buy, but that’s what makes a market I suppose. As for myself, I will look for short-term rallies that I can continue to fade. In fact, it’s not uncommon in a situation like this for me to be in and out of the market 7 or 8 times in a single day. I also keep my position size a little lighter on the downside because indices are necessarily designed to go lower as they are not equal weighted. Always keep that in mind, as it is a product, not a calculation.