Market Has A Buyer

October 25, 2022
Author: Peter Stolcers, Founder of OneOption
Author
Pete

Corporate buybacks will reach $1.1T this year.

PRE-OPEN MARKET COMMENTS TUESDAY – The market staged a low volume rally yesterday and it tested resistance at the down trend line and horizontal resistance at SPY $380. MSFT and GOOG will report after the close today and META, AMZN and AAPL are on deck Wednesday and Thursday. One fifth of the S&P 500 has reported and 75% have beaten estimates by a margin of 5.4%. Earnings are up 3.1%, but ex-energy they are down 3.5%.

Goldman Sachs reported that companies are busy buying back shares and 25% of the S&P 500 companies are in their full open window. Corporations are poised to buy back $1.1T this year and buybacks will keep a bid to the market.

We can expect some excitement into tech earnings this week. In July we saw a light volume rally on “better than feared” results. After that bounce ran its course, sellers returned. Although I don’t trust light volume rallies, they can continue much longer than expected. If we can get through SPY $380 with ease after earnings from MSFT and GOOG, this bounce has a chance to continue for at least a few more days.

There is a ton of cash on the sidelines waiting to be deployed and the next two weeks are historically the most bullish weeks of the year. This pattern exists because the market bounces from deeply oversold conditions in September/October. Once mega cap tech stocks report, the air will be let out of the balloon. If the market can’t get off the deck in the next two weeks, it will be a warning sign.

The global backdrop is bearish and job growth in the US is keeping buyers somewhat engaged. When our economy starts to show signs of strain, the tone will sour quickly. I feel that any bounce will be short-lived and until I see bona fide buying on heavy volume, I will view these moves as great shorting opportunities when they stall.

The news over the weekend was weak. European flash PMIs were weaker than expected and they are solidly in contraction territory.  The BOE had to defend the gilt and the BOJ has had to defend the Yen. When the largest economies in the world have to defend their bonds/currencies it is a sign of trouble. China’s GDP increased 3.9% and retail sales were up a dismal 2.5%. Less than a year ago both were typically in the high single digits. The Hang Seng Tech Index was down 10% yesterday.

Swing traders can buy the SPY now. We will hold without a stop. I am expecting a bounce that lasts at least a few days.

From a day trading standpoint, I feel there will be an upward bias today. We will know if the early gap down is instantly gobbled up and we see stacked green candles that challenge SPY $380 on the first attempt. I don’t know that this will happen on heavy volume, but if it does, it will confirm my suspicions. When I look at daily charts I am noticing many down trend lines being breached to the upside and that is a good sign. These stocks have room to run and the price action is fairly steady. If the market can’t get through $380 in the first hour of trading, we could be in a holding pattern until the close. It would be a sign that traders will wait for the earnings announcements. Mixed candles with overlap and an “inside day” would mean that you have to trim your size and trade count today.

Support is at $374 and resistance is $380.

SPY is breaking through resistance ahead of tech earnings.


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