This is likely to be another dull trading day. Keep it light.
PRE-OPEN MARKET COMMENTS TUESDAY – From a technical standpoint the SPY is resting between the 100-day MA and the 200-day MA and the volume is extremely light. Year-end seasonal strength has produced a wimpy little bounce that can quickly be reversed. As long as support at the 100-day MA holds, day trade from either side. If support at SPY $391 is breached, focus on the short side.
Bulls are leaning on seasonal strength, record cash levels, corporate stock buy backs, signs that inflation is slowing and steady job growth.
Bears are leaning on an inverted yield curve, reduced earnings expectations, a hawkish Fed and global economic contraction.
Overseas markets were generally higher. There is talk that China will ease its zero Covid-19 policy and their market shot higher (HIS +5%). This could be in response to the protests.
Inflation has eased slightly in Europe but the ECB (Lagarde) said inflation has not peaked. Powell speaks tomorrow (1:30 PM ET). Bullard said that the market is not pricing in the likelihood of future Fed tightening.
Nothing is as good or as dire as it seems so the market is compressing in a tight trading range.
There are many economic reports Wednesday through Friday. In general, I am expecting activity in China to be very light and jobs in the US to be steady.
Swing traders should remain sidelined. I don’t swing from the short side in November or December, but I am slightly more bearish than bullish. The lack of enthusiasm the last two weeks tells me that this bounce could be tired.
Yesterday the market drifted lower on light volume. There is no news to break the market out of this tight trading range and this is likely to be a dull day. Traders will wait for the economic news and comments from Powell Wednesday. Given that overseas markets were generally up, I would favor the long side this morning. The best scenario is an early bid check where the low from Monday ($395) holds. That bid check should have mixed overlapping candles and that would be a sign of weak trend strength. Look for tails, bullish hammers and bullish engulfing candles off of the low from Monday. That would be a sign of support and that will give you a good entry point for longs. If the low from Monday fails easily, be ready to focus on the short side.
How can I be so confident that this will be a good day to trade from the long side? I am not that confident!!! The market is chopping around on light volume and that is the pattern. We have nothing to trade off of except that the market is chopping around. We tested the downside Monday and we are likely to test the upside today and the bounce in China will provide a small tailwind.
KEEP YOUR TRADING LIGHT TODAY. There should be better action the rest of the week.
Support is at the 100-day MA and resistance is at the 200-day MA.