The S&P 500 initially tried to rally during the trading session on Tuesday but gave back the gains as we can see a lot of bearish pressure above, with sellers having been very aggressive. The 3950 level has offered a bit of a ceiling in the short term, but at the end of the day, liquidity will probably continue to push this market towards the 4000 handle. In the meantime, there is a potential for bond markets to cause major problems. This was seen during the trading session on Tuesday.
The 10-year note has broken towards the 1.30% level, which has people nervous, because it causes reshuffling of portfolios. One of the main reasons that stocks have gone higher is that “there is no alternative.” In other words, bonds have been paying almost nothing as far as yields are concerned lately, and therefore money just flows directly in the stocks. This will be especially true when it comes to dividend-paying stocks. However, as we are most certainly in a bubble, the reality is that there is a lot of money to be made in a bubble, at least until it pops.
The 4000 level above will almost certainly cause some type of mass profit-taking move, and I would be rather stunned to see this market slice right through there without too much in the way of a pullback. In the meantime, it even looks like we may pull back towards the 3900 level, possibly even the 3800 level. Once we get close to the 3800 level, the 50-day EMA starting to reach that general level will also offer a bit of support. It probably would make sense to pull back, due to the fact that we are running out of momentum. When you look at the last couple of weeks, you can see it was a very strong until about five candles ago. This suggests that you are running out of momentum, which is perfectly natural. This is not me telling you that the markets are going to fall apart tomorrow, just that you need to be looking for opportunities to pick up the S&P 500 “on the cheap.” Regardless, I think one way or another we will find our way to the 4000 handle.
