A week ago we had 3 days of intense news and the market is right where it was.
PRE-OPEN MARKET COMMENTS THURSDAY – “Fed Speak” has been as hawkish as possible with the upper end of the target rate rising. There is more “Fed Speak” today, but the big guns have been fired. Corporate profits and guidance have been underwhelming and valuations remain high. Cost cutting measures have been announced and stocks rallying on the news. This is not a healthy backdrop for the market, but it keeps going up.
I have scoured the overnight news and there is nothing to justify the rally this morning other than erasing the loss from yesterday. Buyers and sellers are active and they each take their turn on any given day.
If you try to rationalize what the market should be doing, you will drive yourself crazy with all of the “good news is bad news” scenarios. This is why I favor technical analysis. When I look at the price action, it is fairly bullish here. In yesterday’s comments I gave you those specifics.
Bulls need to prove that they are still interested at this level. That means we need a breakout in the next week. If we don’t get one, the risk of a pullback increases. The bid has been strengthening and the drops have been less severe. That has not gone unnoticed and Asset Managers need to feel that this is a good long term entry point. The question they ask themselves is, “Will the market be higher than this level a year from now?” Most market rallies start well before the darkest economic hour.
Swing traders bought the SPY on the open Tuesday (SPY $409). The next potential “speedbump” is the CPI next Tuesday. We will hold through the news because this is a longer term position. We will ride out the “wiggles and jiggles”. If you are a short term trader, you need to reduce exposure into the CPI. The market is constantly in “wait and see” mode and that is the next event. Given the overall price action this year, I view dips as an opportunity to buy. I like selling bullish put spreads on strong stocks that are breaking through technical resistance. This is a “bread and butter” swing trading strategy that we will start using again.
Day traders should expect volatility. One day we are up and the next day we give it all back. Most days we have two-sided action and nice ranges. The key to this price action is volume. When we have heavy volume, we get these swings (Tues). When the volume is light, one of two scenarios plays out. The market either trends with small bodied candles and minimal retracement (Wed) or it chops around in a horizontal range with mixed candles (Mon). One week ago we had an onslaught of news. You could not have packed more information into a 3 day span. Unfortunately, the market is right where it was a week ago. Given the price action recently and the lack of an overnight “driver” I believe that the opening gap higher will be challenged. Overseas markets had a positive bias. How much of the gap we fill and how we do it matters. If we start with long red candles we are likely to fill in most of the gap. If the bid holds up well with minimal fill in the first 45 minutes, buyers are engaged. Until you get a sense for which scenario will play out, keep your powder dry.
Support is at $408 and resistance is at $417.