Here’s what to watch for. We need the breakout early in the day or we are “dead in the water”.
PRE-OPEN MARKET COMMENTS MONDAY – The SPY gained 10% in the last month. The FOMC statement will be released next Wednesday and mega cap tech companies will post earnings this week. Traders will be anxious to see if those releases are consistent with the recent rally. I am not expecting much movement the next 2 trading days and we will be in “wait and see” mode.
The Fed is going to hike rates by 25 basis points. They can justify the move because core inflation is still high. Recent economic data points have been good, the bank stress tests show that balance sheets can withstand a recession and the market is at a 52-week high. This gives the Fed plenty of breathing room and most Fed officials believe that there will be one more rate hike this year after the one next week. I don’t view the initial reaction as being bearish because the market is expecting the rate hike. I do believe that the threat of a September rate hike will weigh on the market towards the middle of August when the Fed is in recess.
Mega cap tech stocks will be in focus. MSFT and GOOG report Tuesday after the close. AI potential will be hard to measure and they could retain current lofty valuations since it is deemed to be “the next big thing” since the internet.
August and September are historically weak months for the market. Once mega cap tech stocks report, some of the excitement will wane. The market will get nervous when the Fed is in recess. This is just a normal seasonal pattern. We saw a rally on Q2 earnings in July and then a decline (Aug-Sept) in 2020, 2021 and 2022. After the jobs report on August 4th things will really quiet down. Traders and investors take vacations before the kids go back to school. We still have a 2-3 more weeks before the action dies down. Overseas markets were down slightly.
The price action the last few days has been soft. This is a light round of profit taking after a nice run. We know that from the mixed overlapping candles and low volume. Weakness overseas will pave the way for a bid check early. If the gap up holds steady early in the day, we could see a nice float higher. 1OP for SPY M5 is in a deep trough and that bullish cross should fuel a move up to the high from Friday. We want to see that high breached on the first attempt. If this scenario plays out, the market could float higher on light volume today. Mega cap tech earnings will attract buyers and shorts will be passive into those numbers. We need that upside breakout early in the day. That is our best chance for movement and if it does not happen early, we will be trapped inside of Friday’s range today.
Support is at SPY $450.50 and resistance is at $454.20.