Negative Sentiment Carries Into Tuesday

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Alex Partida

Dec 06th 2022  .  3 min read

Negative Sentiment Carries Into Tuesday

Market sentiment has quickly changed from the euphoric high after the dovish “Fed talk” last week to heavy, controlled selling throughout the trading session today. 

Although there was not much downward movement in the first few trading sessions of December, yesterday, the levy broke and carried into today’s session.

Much of the selling today stems from an adverse reaction to the S&P U.S. Services Purchasing Managers Index (PMI). Data in the report implied that the U.S economy may be in the beginning stages of a contraction, confirming what many traders already believe to be true. There is also the additional catalyst of the U.S. Consumer Price Index (CPI) report next Tuesday, Dec. 13. The following day the Federal Reserve (Fed) will announce its benchmark interest rate hike decision at 2 p.m. Eastern.

With CPI and rate hike announcements approaching, the market can prepare itself in many ways. Markets often price in unfavorable economic reports

With the market rallying throughout November, there is plenty of profit taking to be had by the big institutions. A sell-off ahead of the reports gives the market room to return to the previous swing highs. Sometimes it can seem that the market only goes up, but it’s important to remember that there is always a reversion to the mean. This sell-off has led the market to equilibrium ahead of a significant report such as CPI and a critical decision on rate hikes.

Market quickly breaks big level

With looming catalysts and recent economic data reports, the selling continued strongly today when the opening bell sounded. The S&P 500 futures quickly rejected the 15-day simple moving average (SMA) at 4,004 and broke a massive level

In a previous Simpler Insights article, the roadmap for capitalizing on a move like the one seen today was explained:

“On the downside, if 4,000 breaks, there is a big target of the 21-day exponential moving average (EMA) at 3,970.”

Not only did the target of 3,970 arrive quickly today, but the selling also continued strongly after temporarily finding support at the key moving average. 

Controlled selling leads the way down

The rest of the day was straightforward, continuous selling without a real cover pop. This was again another display of controlled selling without any real panic in the market. When there is a slow and steady bleed like the price action seen today, it can be an indication that big money on Wall Street is leading the way down. 

As we approach the two significant news event catalysts next week, one thing to be aware of is the potential traps set by the market. 

Frequently, the market wants to find itself around the 21-day EMA at the time of the big event. Currently, the 21-day EMA is at 3,970 on the S&P 500 futures. Look for the market to interact with this level over the upcoming sessions.

Market continues to sell

The Nasdaq and the S&P 500 were negative to close the session. The S&P 500 closed down 1.44%, losing 57 points, while the Nasdaq closed down 2.05%, a loss of 230 points. The Dow Jones followed, closing down 1.09%, declining 370 points.

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