S&P 500: Tuesday’s Bearish Reversal Doesn’t Mean Anything

2022.12.14 17:25

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Tuesday was another wild ride for the as an encouraging monthly report sent stocks flying at the open. Unfortunately, that was as good as it got, and the index gave up most of those early gains when follow-on buyers failed to show up.

S&P 500 Index Daily Chart.

Usually, this kind of reversal is bearish. But Tuesday’s price action doesn’t count because the market discounted those early gains. As I’ve been saying for days, this market only cares about the Fed’s policy outlook, and we won’t know what that is until the this afternoon.

While Tuesday’s fizzle would ordinarily be a big red flag, given what is important to this market, the lack of follow-on buying was expected because a modestly improved inflation report is not driving this market.

That said, Tuesday’s big pop shows the upside potential if we get the right cocktail of encouraging news today. Given inflation and a potential economic slowdown, the high is far more likely to get even higher than it is to peak and reverse.

I am an optimist and am looking for prices to continue rallying from the October lows over the near term, but I’m not married to that outlook. I will grab on whichever direction the market wants to go post Fed’s decision.

Give the market a few minutes to process the news, and be careful because the initial knee-jerk is often in the wrong direction. After a handful of minutes, the market will no longer hide its true intention and will make a big move.

Whether that is up or down is anyone’s guess, but as nimble traders, there is no need to guess. Follow the market’s lead and let the profits come to us.

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