The S&P index started lower in early U.S. trading due to worries about corporate earnings, tariffs, and inflation. A disappointing Richmond Fed index added to these worries, yet the overall trend still shows growth. Market prices can sometimes go beyond reasonable levels, so it’s wise to wait for technical signals to sell, like those from moving averages. Today’s drop found support near the 50-hour moving average, which has been an important level. Last Monday, the index also paused at this point before climbing on Tuesday. Following news of Powell’s dismissal, it dipped below both the 50-hour and 100-hour moving averages but quickly regained the 50-hour MA as support. This support has held up through recent market moves, including a new record close yesterday.

Monitoring Market Levels

Even with some profit-taking, today’s dip again found support at the 50-hour MA, showing that buyers are still in control. Sellers would need to push prices below the 50-hour MA at 6305.60 and, ideally, below the 100-hour MA at 6257.40. If these levels break, the next target would be around 6200. Until there’s a confirmed break, the bullish trend continues, and sellers haven’t shown they can shift the market momentum. Traders should watch for any confirmed break below key moving averages, which could signal a possible shift, as buyers currently remain in charge. Given the market’s tendency to buy dips, we think selling out-of-the-money put options is a good strategy to earn premium while buyers maintain control. This bullish outlook is supported by recent data showing that first-quarter S&P 500 earnings grew over 6%, exceeding expectations. Additionally, the latest Consumer Price Index report from May 15th showed a slight drop in inflation to 3.4%. These fundamental factors support the current trend. For now, we will rely on moving averages for risk management. A confirmed break below the 50-hour moving average would signal us to reduce bullish exposure. If the price then also breaks the 100-hour moving average, we would consider buying put options to prepare for a potential drop toward the 6200 level.

Market Sensitivity and Strategy

This cautious approach is necessary because even strong bull markets usually have pullbacks of 3-5% without breaking the main trend. The current low volatility, with the VIX recently near a historically low level of 12, makes purchasing protective puts relatively cheap. We view this as an affordable way to guard against a shift in market momentum. The market is very sensitive to news headlines, especially regarding the Federal Reserve’s policy direction. Recent news about Mr. Powell briefly affected prices. With the CME FedWatch Tool showing a high likelihood of a rate cut by September, any data that changes these odds can lead to significant moves. Therefore, we should be ready to respond quickly if key technical levels are breached. Create your live VT Markets account and start trading now.

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