The S&P 500 fell significantly during the course of the week to reach down towards the gap just above the 4000 handle. A lot of this was caused by hotter than anticipated inflation numbers coming out the United States, having people start to price and the fact that the Fed may have to tighten monetary policy much sooner than originally thought. However, that was selling pressure brought on by a “weak hands” type of move as the market sold off for a couple of days. That being said, the Federal Reserve has been steadfast in stating that they are sitting tight with loose monetary policy, and that any inflation would be “transitory.”
S&P 500 Video 17.05.21
That being said, the weekly candlestick does look like a hammer, just like the one before it. Yes, we did get a significant selloff, but the retail sales number came out much weaker than anticipated on Friday, adding more credence to the idea that monetary policy is going to continue to be loose going forward. If we can break above the top of the candlestick, then we should go looking towards the 4400 level based upon the recent structure, and the fact that the market does tend to move in 200 point increments. If we were to break down below the 4000 handle, then it is possible that we drop down to the 3800 level, but at that point I would not be a seller, rather I would be a buyer of puts. Loose monetary policy will continue to push this market to the upside given enough time. After all, that has been the play for the last 13 and half years.
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This article was originally posted on FX Empire