The news does not get any bigger and the market is coiling like a spring.
PRE-OPEN MARKET COMMENTS MONDAY – This is going to be a very important week. Earnings and interest rates drive the market and we are going to hear from META, AAPL, AMZN and GOOG this week. We are also going to hear from the FOMC on Wednesday. The market is coiling like a spring inside of a D1 wedge and we are going to breakout one way or the other this week.
Why is the market down this morning? Is the move justified? Last week the market looked so strong. Was that breakout of the D1 High- a fake?
This is a critical juncture for the market. Buyers and sellers have been active. The same forces from 10 months ago are still in play. This week institutions will digest the news and they will take a stance. When the dust settles, we will use technical analysis to see who has the ball. A breakout through the wedge needs to have follow-through. The breakout alone is not enough. The first move could just be a head fake. Often we see a big move after the FOMC and that initial reaction is reversed the next day. AMZN, AAPL and GOOG report after the close Thursday. Those releases will be equally important.
Swing traders need to wait patiently for one more week. We will have our answer shortly. I believe the breakout or breakdown this week will set the tone for the next few months and we will take longer term swing trades based on that outcome.
Day traders should be patient on the open. The overnight drop is simply taking back the gains from Friday. The bid has been relatively strong so at some point I expect to see the upside tested. If it happens right out of the gate, the open needs to be the low for the first 30 minutes and we need to see nice green bars. If we get that, we are likely to fill some of the gap. Nice green candles with little to no overlap would be a bullish sign. Anything less will suggest that the bid is vulnerable. We have to be careful if a wimpy bounce like that stalls out. Overseas markets were mixed so that is not the source of the selling. If the market drops from the open, only consecutive stacked red candles would suggest that this move is legitimate. If the drop has long tails and we see green candles mixed in early, it is a sign that buyers are still engaged. This would be our best scenario in my opinion today. Let the 1OP bear cycle run. If the damage is minimal, the next bullish cross will be a good one. I am seeing many more good longs than I am shorts in the searches recently and that has me leaning bullish here.
In general, know that this is just jousting and position squaring ahead of major news. The action Tuesday and Wednesday is going to quiet down and the conditions will be dull. Then all hell is going to break loose after the FOMC.
Support is at the major MAs. They important intraday, but they are pretty meaningless on swing basis. The wedge is what matters and that should serve as your guide for swings. Resistance is at the high from Friday.