These stocks have lead the light volume bounce and they are trading at lofty levels. Traders are wondering if they have any upside left.
PRE-OPEN MARKET COMMENTS WEDNESDAY – Yesterday the market showed some signs of strain near major horizontal resistance. Big tech companies have accounted for most of the market gains this year and GOOG and MSFT reported after the close. Traders will be watching the reactions to gauge if there is any punch left in this light volume bounce.
After the SIVB failure, the Fed has injected $1T of liquidity into the system. That reduced credit risk. When there is lower risk, shorts start to cover positions. This sparked the low volume short covering bounce. Now we have another “bad actor” and First Republic is on the ropes. It is smaller than SIVB , but don’t dismiss this warning sign. Credit issues start small and they ramp up quickly. If they are not careful, the Fed will soon run out of fingers to stick in the dam.
Speaking of credit, the debt ceiling is approaching in the US. Politicians are playing “chicken”. They will drag their feet until the final hour. As the deadline draws nearer the market will send them a message (in the form of a drop) to get the deal done.
A week from today the FOMC statement will be released.
UPS reported earnings and the outlook is dim (especially in Asia). Transportation is an economic barometer and the Beige Book reported weak shipping across all regions last week. GOOG was flat after the number and MSFT was up nicely. META will report after the close today and there was overnight news of an advertising glitch where some customers are looking for a refund. According to one industry expert it is the worst problem he has seen in over a decade. I’m sure we will hear about it in detail after the close. AMZN will report after the close tomorrow. AAPL does not report until May 4th and that is the day after the FOMC. At a forward P/E of 28, the QQQ is pricing in great earnings. Tech giants have been cutting payrolls and I suspect the guidance will be cautious. Once they report, the market bid will soften.
The economic calendar is light this week. GDP (Advanced) for Q1 will be released tomorrow. This will be our first look at activity and analysts are expecting growth of 2.3%. The PCE deflator will be posted Friday and it is used by the Fed to gauge inflation. ISM manufacturing/services, ADP and the jobs report will be released next week.
The low volume tells me that this bounce is vulnerable. We are seeing signs of resistance, but we do not short until we have a technical breakdown. I would like to see another attempt to get back to SPY $415 and a lower high. I would swing short any red candle of decent size after that if it comes on volume.
Day traders need to watch the pending bullish cycle on the open. The sellers from yesterday did not vanish. At some point today, they will test the bid. If we see a half-hearted bounce with mixed overlapping candles that struggles to get through $408 (VWAP) then we will know a short is setting up. Then we need to watch for wicks, tiny bodied candles and a bearish engulf/hammer off of the high of the day. That first reversal off of this pattern should be good. The price action yesterday was some of the weakest we’ve seen this year. I am expecting good volume today. There are many earnings releases this week and buyers and sellers will be active (both sides will take their shot). We have not seen any consecutive long red D1 candles this year, so I am not expecting another big down day today.
Support is at $406 and resistance is at $411.