This Support Level Will Be Tested In May

Posted 9:30 AM ET - The market has been soft and the old adage "sell in May and go away" has worked. Trade negotiations with China soured and new sanctions against Chinese telecommunications company Huawei have escalated trade tensions. A deal was priced into the market and it looks less likely. I mentioned in my comments last week that I don't believe a trade deal with China will happen before the 2020 elections. I am going out on a limb with this prediction, but that is how I feel. A US trade negotiation team will travel to China at the end of the month, but neither side seems motivated. China's economic numbers have been relatively soft in the last two months. The US could be close to a trade deal with Mexico and Canada. Steel and aluminum tariffs were lifted and the negotiations will continue. Trump will visit Japan this week and he hopes that trade negotiations can move forward quickly. Japan posted a much stronger than expected GDP (2.1% versus expectations of -.2%), but the internals were not as strong as the number suggests. Imports declined much faster than exports and that added .4% to the number. Japan plans to increase its sales tax from 8% to 10% in October. That could be a major drag on the economy and it needs strong growth heading into the event. The FOMC minutes will be released Wednesday. I'm not expecting any major surprises. The Fed is dovish and there will not be any rate hikes this year. In October the balance sheet roll-off will end. Flash PMI's will be posted Thursday morning. I believe that the combination of slower global growth and stalled trade negotiations with China could spark selling. We need decent readings in the EU and Japan to prevent that. Swing traders should remain in cash. This will be a relatively slow week and trading volume will decline ahead of the holiday. I don't want to short this market until major technical support levels have been breached. Until then, we have to respect the strong rally that started in January. If the major moving averages are tested and they hold, a nice buying opportunity will present itself. Day traders should relish the intraday volatility. We've seen strong moves and wide ranges. Expect similar this week. The market will open on a weak note today. These dips were bought aggressively last week. I don't know if that will be the case today, but I will be watching for. If we get two consecutive long green bars with closes near the high of the bar I will buy the open. It's impossible to determine how the day will play out. I am simply going to go with the flow. The prior day's high and low and the first hour range are very important. I rely very heavily on relative strength/weakness. This is my edge and it gives me cushion if I get caught on the wrong side of the action. When I'm on the right side of the action the profits come quickly. Option Stalker searches make it easy to find these prospects. Look for a choppy week with declining volume. We are likely to test the 200-day moving average in May. . .

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