No Earnings Breakout

Earnings releases climaxed this week and they had the potential to fuel a breakout. That did not happen and we could see profit taking.

PRE-OPEN MARKET COMMENTS FRIDAY – This week we had major earnings announcements. From my perspective, the market reaction confirms that resistance is intact. Earnings were a potential breakout catalyst. They failed to produce and the air will get let out of the balloon. Shorts will be more aggressive now.  

GDP came in at 1.1%. This is the first Q1 reading and it is below the 2.3% that was expected. The PCE was in line this morning (.1%).

Next week’s FOMC statement will be very important. Banks are tightening and that could be equal to a 50 basis point rate hike in and of itself. Traders will be watching to see if the Fed softens their tone. They remained steadfast in March even after SIVB failed.

Mega cap tech stocks account for the majority of the market gains this year and the breath has been poor. MSFT and META delivered. GOOG and AMZN were flat. AAPL reports next Thursday. In general, company top and bottom line performance has exceeded expectations by a good margin. At the current price level, good news was priced in and that is why we are not seeing a breakout.

I believe that the market gains will be hard fought from this point forward. I will be watching for a lower high as the market tries to challenge horizontal resistance. An immediate smack down and a lower high would convey that resistance is stiff and that we might see a pullback. Much of this will depend on the Fed’s statement next week.

Day traders have seen decent volume and two sided action this week. Buyers and sellers are active. Once the momentum is set, the market tends to continue in that direction. I believe much of the price action is program driven. We’ve had a bearish and a bullish trend day this week and it is very important that you are able to identify these. Good volume and stead price action with little to no retracement are the keys. 1OP spiked near the close and the market will open lower today. Typically, when the market closes very near the high of the day, you will see follow through the next day. I am expecting the dip this morning to bounce as the bullish cycle completes. I don’t know how high we will go, but a strong move higher would suggest we have more upside. I am NOT expecting this. I am expecting a nice test of the high from Thursday and perhaps even a small breakout. A wimpy move could set up a nice bearish 1OP cycle and we could see some profit taking. We’ve seen big moves in both directions this week. Don’t marry one side or the other. Stay flexible and watch the 1OP cycles to get a read on which side has control. Overseas markets were mixed. Europe was down .5% and Asia was up more than 1%.

Our worst case scenario has a fairly high probability of playing out. An early attempt to get through the high from Thursday is rejected and the market drifts back into the range from Thursday. Then the volume dries up and traders start looking ahead to the FOMC next week. We need good volume. That is the key to our trading day.

Support is at the low from Thursday and resistance is at $413.70.