Who Is Buying This Shit?

By all accounts the market should be getting trashed today after horrible tech earnings.

PRE-OPEN MARKET COMMENTS FRIDAY – Who is buying this $hit? The market fell back below horizontal resistance and the downward sloping trend line at SPY $380 before the close Thursday and then the bottom fell out of the QQQ after AMZN reported. Guidance has been terrible this week. If ever there was a reason for the market to drop, this was the time. In 30 years I have learned to respect the power of year-end strength. We are in the two most bullish weeks of the year and today we will also have end of month fund buying supporting the market.

To answer the question, corporations are poised to buy back $1.1T this year and buybacks will keep a bid to the market. They are expected to hit $5B per day in November when they come out of the blackout period. This will keep a bid to the market. Asset Managers with a long term perspective will ask themselves, will the market/stock be higher than this level in two years? If the answer is yes, they will start dipping their toe in the water. Cash levels are at a 21 year high and it is losing purchasing power on the sidelines. Asset Managers are not in the business of picking tops and bottoms.

The global backdrop is bearish and there are many signs that economic growth is deteriorating. Some of the largest sovereigns are supporting their bond market and currencies. Central bank intervention is never a positive.

GDP and durable goods orders were better than expected. The price deflator came in a 4.1% and that was lower than feared. This morning the PCE came in a .3% and that was in line with expectations. The Fed uses this to gauge inflation. Initial jobless claims came in at 217K and employment in the US remains strong. So far the US has been able to tread water.

Does all of this mean that the market lows are in?  No. I would certainly not suggest that after the gloomy earnings guidance this week. It means that you have to be particularly careful shorting into drops. I do believe that the market will find some support here for a few weeks.

Swing traders are long SPY ($379). Stop out if the SPY closes below $379 today (check it in the last 5 minutes of trading). That level needs to hold. I am in “plug your nose and buy” mode as long as that technical level holds. I did expect a mediocre reaction to tech earnings (half up and half down) and instead we got a complete bloodbath. The fact that the market has been able to hang on has me willing to give the trade one more day. I do believe there is room to sparingly sell out of the money bullish put spreads on stocks with relative strength that have reported strong earnings and that have been able to rally through technical resistance.

Day traders should have some nice action today. Tech earnings have been reported and sellers will be emboldened. They do not have to worry about a massive tech rally on earnings. There is also a market bid so you can expect that big drops will be bought. Don’t marry one side or the other and don’t overstay your welcome. There will be big intraday price swings and we can expect that to continue ahead of the FOMC next week. Personally, I like trading from the long side. Many stocks have been trashed this year and they are breaking through downward sloping trend lines. The price action has been much steadier on the long side and these stocks have room to run. If you like trading the short side, short failed bounces. If you like trading from the long side, wait for market drops and buy on support.

Don’t get bogged down on what you think should be happening. I can make an equally compelling case for a rally or a drop and so can other traders. This morning I expected the SPY to be down $8 or more on the AMZN news and that did not happen. Focus on what is in front of you and don’t try to dissect why the move is unfolding. Go with the flow!

We do need to be careful when the market is trapped inside the first hour range. That happened yesterday and traders were waiting for the news. I am NOT expecting that today. We should have a busy day.

Support is at $379.50 (where we will open) and resistance is $385.