Bear Market Bounce Likely

It is critically important to keep this bounce in perspective. Watch the price action.

PRE-OPEN MARKET COMMENTS THURSDAY – Yesterday the market tested the bid after a very strong rally Tuesday. Buyers supported the gap down before it was filled and this sparked a nice rebound that almost closed above the high from Tuesday. I believe the table is set for another bid check this morning and a rally. It is important to remember that this is only a bear market bounce. We do not know how high it will go or how long it will last. If the bounce is brief and shallow, we have more work to do on the downside. If the bounce has good follow through and we get back to the 100-day MA, it could gain traction and it will confirm support at the low of the year.

The key to trading this price movement is to keep your trade duration brief and to stay flexible. Buyers and sellers are flexing their muscles and much of the action is program driven.

Fed rhetoric remains hawkish and they are dispelling the notion of any rate cut in 2023. Inflation is deep seeded and it will not reverse quickly.

ADP and ISM Services were  good and this morning Initial Jobless Claims ticked up to 219K (still low).  I’m expecting a solid jobs report Friday. Next week the CPI and PPI will be released. The transportation sector is the canary in the coalmine and they are warning of a global economic recession. If the economic numbers start to falter the market will tumble.

Earnings season will also start next week. The early action will be dominated by banks. The market bid is typically strong ahead of earnings season. Guidance will be critical.

Credit concerns are starting to surface. European banks never took the write downs in 2008-2010. They have been pledging junk to the ECB to collateralize loans and that is coming back to roost. CS is looking for investors and their CDS (credit default swaps) are taking a big hit. The UK pension funds were getting margin calls because the gilt had fallen dramatically. The BOE had to step in. These are concerning developments on a longer term basis.

I am focusing on day trading. The overnight moves are unpredictable and given the daily ranges, I don’t see the need to take overnight risk.

I like the price action the last two days and I will be looking for a buying opportunity this morning. We will go through another “bid check”. If I see stacked green candles early, I will buy and we could see a gap reversal. Anything less and I will let the bid check run its course. Mixed overlapping candles early would indicate support and if I see that I will wait for a bullish 1OP cross before I buy. Anything organized on the downside (stacked red candles) will keep me sidelined early.

Support and resistance are the low and the high from Wednesday.