Buyers have been waiting for a dip and support. Now they have both.
PRE-OPEN MARKET COMMENTS WEDNESDAY – The calendar is light. Durable goods orders were better than expected (1.7%) and the third estimate of Q1 GDP and the PCE are not going to move the market much. We heard from Powell last week in his testimony before Congress and any Fed speak won’t be much of an influence (the next statement is at the end of July). The only PMI of interest is from China since they do not report a flash PMI. That is also not likely to move the market much.
We are heading into a holiday weekend that could feel like an eternity for traders. Friday the action will slow way down. The 4th of July is on Tuesday so most traders will take Monday off. We do get a nice round of economic data next week and the jobs report will be posted a week from Friday.
The market established a relative high during triple witching and some of those gains were program driven. The retracement from the high featured tiny bodied mixed candles with overlap on low volume. We recognized that as a weak round of profit taking and some of the move lower was caused by end of quarter fund rebalancing. I believe that influence has run its course (T+3 settlement).
This has been a normal pullback in a bullish trend and yesterday buyers returned. The SPY finished on its high of the day. The rally was steady and it came on heavy volume. The SPY is back above AVWAPQ and I view that as bullish.
Buyers are not going to throw in the towel now that support has been established. I believe the gap down this morning is going to get gobbled up quickly. The best opportunity of the day is likely to come very early. Once the bounce runs its course, the action will die down and the volume will fall off. It is rare to see back-to-back bullish trend days and there is no news to support a move like that today. As we head into the weekend the trading range will compress. I am looking for a generally bullish bias into the weekend. If the market has a choppy drift lower that lasts more than 30 minutes, I would consider it a gift. That delay would give us time to find the best stocks and then we can confirm support (horizontal support and tails). I am not expecting a delay in the bounce this morning. Buyers have been waiting for a pullback and they have it. They have also been waiting for signs of support and they have that as well. Now they have an overnight gap down that they can jump on. Tech stocks were strong yesterday and that is a sign of risk on.
Overseas markets were higher and that should provide a bullish backdrop. Much of those gains were related to our rally yesterday.
Support is at $431.20 and resistance is at $436.80.