March 7, 2019
Posted 9:30 AM ET - Yesterday the market took a breather and it closed below a minor support at SPY $278. The news has generally been positive and this indicates profit-taking. The S&P 500 challenged major horizontal resistance and both times it was slapped down. It is still too early to tell if a reversal is underway, but I outlined four things to watch for. A trade deal with China and a dovish Fed are fully priced into the market. Earnings season was excellent and it has ended. All of the upside catalysts have run their course and the market will have to find another "driver". Global economic conditions are soft, but investors will hold stocks as long as that weakness stays abroad. Domestic economic conditions have been stable. ISM services came in better than expected and ADP was relatively strong. I don't believe the market will reverse until we see soft US economic data. A hard exit in England could also do the trick. They are three weeks from the deadline and the EU will only extend it if they have concrete evidence that Parliament can pass a plan. The ECB remained dovish in its statement today (expected). With a potential Brexit train wreck they will remain accommodative. Here are four technical warning signs to watch for: 1. Higher opens and lower closes. 2. Late day selling. 3. A close below SPY $277. 4. Follow through the next day. Swing traders are short a half position at SPY $277.40. We will use a closing stop of $280. We will give the trade a little room and we will tighten the stop next week. We want to see additional weakness very soon. If we don’t get it, we will go to cash. The recent selling could be nothing more than consolidation. In two weeks we will know. If the SPY closes below $275 you can add the other half. Day traders need to tread cautiously. The market is compressing at the upper end of its range and the intraday price movement has been choppy. If we stay inside of the prior day's range, trim your trade count and size. If we stay inside the first hour range, throttled back even more. If by chance we break through those levels, favor that side. My bias is slightly bearish after the price action this week. The S&P 500 has been tough to day trade. Focus on individual stocks with relative strength/relative weakness. Option Stalker has specific searches to find the stocks. Follow the trade signals (buy and sell arrows) on the five-minute chart. Look for a choppy downward bias as sellers check the bid. I don't sense panic selling, just a buyer boycott near major resistance after a strong bounce. . .
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