March 10, 2021
Posted 9:30 AM ET - Yesterday the market shot higher and it was able to hold most of the gains. The downward sloping trend line that started a few weeks ago is still intact. If we break out to the upside we are likely to challenge the all-time high. Market volatility remains high and the average true range has been expanding. The House is expected to pass the stimulus bill today and President Biden will sign it immediately. A few weeks ago I thought the stimulus bill would spark a massive round of buying, but the enthusiasm is rather muted. I believe that some of the buying the last few days can be attributed to the bill finally passing. After it is signed, some of the excitement will wane and sellers could be a little more aggressive. The S&P 500 got a nice pop from the CPI number this morning (.4%) and inflation seems to be contained so far. The Fed has stated that they expect to see some inflation in the next few months because of supply shortages. They expect inflation to settle down in the second half of 2021 and that’s why they are willing to let it rise above their target. Inflation-adjusted bonds (TIPS) are trading with an implied inflation rate of 2% (Fed target). Overnight US 10-Year Treasury Notes declined overnight and there isn't much follow-through to the buying we saw yesterday. I have been shaken out of my bullish positions and I am waiting for market volatility to subside. The economic backdrop looks solid and states are reopening as new Coronavirus cases decline. Stock valuations are fairly lofty and the market could tread water for a few months or it could drop and rebound. In any event, stocks need time to grow into their current valuations. Swing traders should wait patiently for technical confirmation. I know it's hard to sit on the sidelines when everything seems so positive. I feel that any market rally will be challenged and we will have opportunities to buy if prices stabilize and the market breaks out. China reopened 6 months ago and the PBOC is considering easing. That means that they see some short-term speed bumps ahead. Their top banker has cited domestic and international "bubbles". China's market is officially in correction territory (-15% from the high) and it is down for the year. I believe that China will be the first to rebound and I'm closely monitoring their data points. It is important to put our market into context and to monitor what's happening in the rest of the world. In the meantime, I plan to day trade some of this volatility. Day traders are in a "sweet spot". We are seeing heavy volume and excellent intraday swings. There are lots of opportunities on both sides of the market and the pre-open rally today will take us close to the high Tuesday. If we are able to break out through that high, favor the long side. Be careful chasing stocks on the open since gaps higher have had a tendency to retrace. I missed the early run in yesterday's "gap and go" rally and that was intentional. I don’t chase and I won’t set myself up to lose money on a gap reversal. I was able to catch some nice trades throughout the rest of the day. This morning I will watch resistance at the prior day's high and I will look for heavy volume and relative strength on any dip. The market wants to rally and the stimulus bill will keep profit takers/short-sellers at bay for the next few weeks. Tech stocks have been badly beaten down and I believe that is where we will find the most consistent intraday rallies today. Lean on Option Stalker searches to find the best stocks. Support is at $385.80 and resistance is that $390 and $392. . .
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