Here’s what to expect this week.
PRE-OPEN MARKET COMMENTS TUESDAY – Buyers are in control and the market has added to the breakout from two weeks ago. We are seeing rotation into cyclical stocks and small caps and that is a sign of “risk on”.
What should we do now? I like the price action this week. The market was able to move higher after the CPI and the FOMC. We know that there are unresolved issues (possible regional bank failures, additional rate hikes, softening economic data points and stretched stock valuations). That means that a run-away rally is unlikely. This is going to be a stair-step pattern where we take two steps forwards and one step back.
A couple of weeks ago the market was still in a holding pattern. We had mixed overlapping candles and no clear sense of direction. It was very difficult to swing trade because a nice overnight move up would instantly reverse. Now we know that dips are likely to be brief and shallow and that they are buying opportunities.
The June jobs report won’t be published until after the holiday (July 7th) so we are heading into a news vacuum. The 4th of July falls on a Tuesday so many traders will be taking Monday off to extend the weekend (myself included). We will get the official PMIs at the end of next week, but those are not typically big catalysts.
Why am I looking two weeks ahead? Because that is what the market does. It is constantly looking for the next catalyst and this is a news driven environment. I see a dead spot coming up. We might still have a little upside, but recent gains need to be digested.
As the market pushes higher, set targets and take gains on swings in the next few days. Regardless if you are day trading or swing trading your mindset should be to buy dips and to take gains into strength. Use the new alerts to help you do that. If you have a strong stock, set a F-T alert for Strong vs SPY or LRSI using M30 or H1 for swing trades. These longer time frames will require a meaningful dip in the stock. That means you will have greater upside when it triggers (one step backwards, two steps forward). We want to catch that move with the notion that the stock will take out the recent relative high. Use this same strategy for day trading and use M5 as your time frame.
The market is down 12 S&P 500 points before the open and overseas markets were generally down. 1OP is spiking and a bearish cross is likely early. All major technical support levels are intact. I would let this bearish cycle run. We had a little profit taking Friday and sellers will take the first shot today. The most likely scenario is a gradual drift lower with mixed overlapping candles and light volume. This is our best case scenario because it is a sign that the selling pressure is not that heavy. Once support is established we will have an opportunity to enter longs at a good price and the early weakness will help us identify stocks with relative strength. Once this bid check has run its course, we will have an opportunity to join the longer term up trend. Buyers have not thrown in the towel. We want the weakness to be relatively brief (less than an hour) and we want the drop to be relatively small. If we take the FOMC low and subtract it from the high Thursday the mid-point is around $438.60. We are going to open below that level this morning and we do not want to stray too far from it. We want these long green breakout candles to hold. If the open from Thursday fails, we are likely to see additional selling pressure. If the bid check lasts more than two hours this morning we have to be more cautious. It would be a sign that there is decent selling pressure (profit taking).
Expect a rather dull day and a “holiday hangover”.
Support is at $436.20 and resistance is at $443.90.