Traders are going to wait for the FOMC statement next week.
PRE-OPEN MARKET COMMENTS FRIDAY – The PPI came in this morning and it was “hotter” than expected. This should not come as a surprise. The PCE and hourly wages came in high last week. The Fed and the ECB have been saying that inflation is persistent. The S&P 500 dropped 40 points on the news and the futures are slated to open 12 points lower. From purely a trading standpoint, this is not the dramatic reaction I was hoping for.
We saw some selling pressure Monday and Tuesday, but the volume has dried up. The market could be very comfortable between the 100-day and 200-day MAs ahead of the FOMC next Wednesday. We needed a big reaction one way or the other pre-open and that does not look likely.
Longer term swing traders should remain sidelined. If you sold OTM bullish put spreads, use the 100-day MA on SPY as your guide and hold the positions as long as it closes above it.
Day traders we need volume. A gap reversal with stacked green candles on heavy volume is unlikely given the news. That would be a sign that buyers are aggressive. Why would they be aggressive when they have not shown an appetite for stocks the last week? They wouldn’t. Might we see a tenuous bounce? I hope so. That would set up a decent short when it stalls. We want half of the gap preserved. Could we see a “gap and go” with stacked red candles on heavy volume? Probably not. We needed a bigger negative reaction that gets us close to the 100-day. That breach would give us decent movement today. I believe that we are going to see a light volume drift lower. Favor the short side and watch what happens at the 100-day MA. Trade under the premise that we are already in “wait and see” mode for the FOMC next week. If we see nice red candles early, that will confirm that you want to focus on the short side. If the longest candles are red, that is another sign to stay short. If we see light volume and mixed candles, expect a slow day.
Support is at the 100-day MA and resistance is at $396 and $400.