You need to be very cautious but I recognize that there is still a whole world of trouble out there waiting for the markets to deal with going forward.
The NASDAQ 100 Index rallied significantly on Wednesday to break above the resistance barrier that has been so difficult to deal with over the last several weeks. Now that we are broken above here, the market is going to look toward the previous consolidation area that we have been in for a while. Ultimately, this is a market that I think willl continue to see a lot of hesitation, as we have gotten a bit overdone.
Even if we do rally from here, it’s likely that the 13,000 level will continue to be a difficult area to break above, and I think we will need to see quite a bit of effort to make that happen. If we were to break above the 13,000 level, that would be a very strong turn of events, perhaps opening up the possibility of an even bigger move higher. At this point, the market would have a lot of interest in the market, because it would kick off a massive short-covering rally.
If we turn around and break down below the previous area of interest, the 12,250 level, it would more likely than not cause a bit of a breakdown. At that point, we would start looking at the 50-Day EMA, which is an area that I think is going to continue to see a lot of interest. Underneath there, then we have a real shot at going down to the 12,000 handle. A breakdown below the 12,000 level would be a very negative turn of events and open up another attempt at the 11,000 level.
We are in the midst of earnings season, so I think it will continue to be very volatile when noisy, so you will need to be cautious with your position size. Quite frankly, I have tried to short this market a couple of times over the last few days, and have gotten dinged for minor losses here and there. When you short the market, you need to use a smaller position size than going long, because quite frankly most of these markets are set up to go higher over the longer term. Because of this, you need to be very cautious but I recognize that there is still a whole world of trouble out there waiting for the markets to deal with going forward.