Market Bounce Likely Today
The last 4 gaps down have not gained traction. No reason to think this one will.
PRE-OPEN MARKET COMMENTS TUESDAY – After a holiday weekend the market is staring off on a sour note and the S&P 500 is down 35 points before the open. The price action over the last few weeks has been very choppy with moves in both directions. The SPY $395 level is major support. If that level is attacked with long red candles, I will respect the move and that would be a sign that that support level is going to fail. Until then, a gradual drift down to it suggests that sellers are not that strong and that the support level will hold.
In the last few weeks we’ve had an onslaught of news. The Fed is as hawkish as ever and earnings have underwhelmed. The market has been able to tread water and that tells me that longer term money is starting to find its way into the market. Does this mean we are off to the races? No. It does mean that a giant wave of selling is not likely. At this stage I believe the one thing that could spark a decent market decline is a big drop in jobs. The Fed has been leaning on that. I’ve been watching the initial jobless claims number and jobs are stable.
I did not see any news over the weekend that concerns me. Overseas markets were down a little.
Swing traders are long SPY at $409 and we will continue to hold that position. This is a longer-term core position and I don’t have any plans to exit unless we breach SPY $395 with gusto. That is also when I would consider closing down bullish put spreads. Until then, I believe that any decline will be weak and that this drop will ultimately set up great entry points for selling out of the money bullish put spreads on strong stocks that broke through technical resistance on heavy volume and that are able to hold that breakout during the market pullback. That price action demonstrates strength.
Day traders should expect and early probe. Only a gap and go with stacked red candles would get my interest. That would be a sign that sellers are finally aggressive. I am not expecting this type of price action. Why not? Look at all of the gaps down last week (4). They all found support. You know from my articles this weekend that the market tends to keep doing what it has been doing. A mixed choppy drift lower will eventually find support. I would be less interested in shorting this first move. Why? Because the move could bounce instantly and then I am trapped. The moves have not been that strong either way. If we operate under the premise that the market is choppy and that it will try both sides, a good trade will set up once support forms. Then we will get a release upwards.
These comments are consistent with everything I have written and after reading the new articles you should be able to use these lessons to formulate your game plan for the day. There is a good chance that the market drifts back into the range from Friday and we all know what that means.
Support is at $400 and the low from Friday which will be tested right away. Resistance is the high from Friday and if we break through we will fill the gap from Friday.