Market Feels Weak – We Could See A Little Selling Pressure This Week

Posted 9:00 AM ET - The market has been compressing and a wedge pattern has formed. If you draw a line across the recent highs and another across the recent lows you can see it. This technical pattern will be resolved one way or the other in coming weeks. Last Friday the jobs report was disappointing. Only 98,000 jobs were created and that was 80,000 less than expected. Personally I don't trust the number, but investors do. ISM services also missed and the economic signals are mixed. The Fed has an aggressive tightening agenda and an economic soft patch will spark concerns that the Fed is moving too quickly. Earnings season starts this week. J.P. Morgan Chase, Citigroup and Wells Fargo will report on Thursday. Banks have been drifting lower and they have plenty of upside. Without a rally in the financial sector the market will not move higher. The political landscape is uncertain and we are seeing profit-taking. Good news was priced in and President Trump is battling "the swamp". He needs to get some points on the board soon or investors will grow impatient. I believe he will find a bipartisan tax cut that he can get passed in the next two months. I am expecting a piece-meal approach as opposed to a massive bill later in the year. Swing traders should keep their powder dry. I believe we will see a small pullback in the next week and support will be established. Mega cap tech stocks will attract buyers and the market will float back above the 50-day moving average. This scenario sets up well for selling out of the money bullish put spreads. Swing traders can take advantage of time decay and they can distance themselves from the choppy action. We need that pullback before we execute the strategy. The wedge formation is a sign that a breakout is coming and we don't want to get in the way of it. Day traders should keep their trading activity to a minimum. This is a holiday shortened week and the volume will dry up. I am favoring the short side today. My market rating has been negative and the price action on the short side has been much more consistent than it has been on the long side. Stocks that are selling off drift lower in and orderly fashion and the bounces are small. On the other hand, bullish stocks seem to run hard and pullback quickly. These moves are harder to time and it is easy to get shaken out of the position. Support is at SPY $234.70 (50-day MA). If that is breached and the market stays below it, favor the short side. Resistance is at SPY $236.50. The first hour range is an excellent tool. If the market can't break out of the first hour range keep your trading to a minimum. If the market is above the first hour high favor the long side. If the market is below the first hour low, favor the short side. The market is flat before the open and so is oil. This feels like a quiet day. . .

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