May 1, 2020
Posted 9:30 AM ET - Yesterday the S&P 500 declined after gangbuster earnings from tech giants. Earnings from Apple and Amazon did not spark excitement overnight and the S&P 500 is down 60 points before the open. We will breach technical support at SPY $288 and the back half of earnings season will be disappointing. In my comments the last two weeks I have been pointing to this moment as a likely buying climax. The "air" has been let out of the balloon and we need to prepare for a bearish news cycle in the next few weeks. Amazon and Apple did not provide forward guidance and Asset Managers have little clarity. Companies that post in the next few weeks will include extra weeks of performance during the shutdown. The recurring theme from all of the earnings announcements is that Q2 will be much worse than Q1. This was supposed to be the first day that the shutdown would end and that the economy would reopen. Businesses and consumers are still very "gun shy" and the recovery will take much longer than expected. The $6 trillion stimulus package will be spent very quickly and we may not have a lot to show for it. Companies that were faltering before the pandemic will be pushed into bankruptcy. We are already seeing this in retail and energy sectors (JCP, DO, CHK and others). Credit is the biggest issue and we will see problems across the spectrum (consumer, municipal, state, federal and corporate). Swing traders are short a half position of SPY at $288 and we will short the other half at SPY $286 today. Place a limit order. I was waiting for a technical breakdown and we will breach support at SPY $288 this morning. We will focus on selling out of the money bearish call spreads in the next few weeks. Puts are still very expensive and if you buy them you have to do debit spreads. We will continue to try and enter our bullish put spreads from the Weekly Swing Trading Video. IF YOU ARE NOT FILLED TODAY, CANCEL THE ORDERS. Day traders should watch the early action. If we see consecutive long red candles closing on their low in the first 30 minutes we will have a bearish downtrend day and you need to focus on shorts. I don't believe this is going to happen. We will probe for support and that will set us up with a bounce. I will be looking for relative strength early in the day and I believe the first round of trades will be on the long side. Once that bounce hits resistance there will be an excellent shorting opportunity and during that bounce I will be looking for relative weakness. When the uptrend line on a five minute basis is breached and when the 1OP indicator has spiked and crossed I will short stocks with relative weakness. We could have two windows of opportunity to trade in the first half the day. My comments are relatively brief because I've been outlining all of the problems facing the market in the last week. If you need a refresher, please review those previous posts. With each passing week that the recovery stalls, the odds for more selling increases. Make sure you are out of your long positions and start scaling into short positions. Manage your out of the money bullish put spreads. Support is at $285 and $278.50. Resistance is at $288 and $291.50. . .
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