There is no overnight move to justify the rally and the back drop is not particularly strong. Here’s why I feel that way.
PRE-OPEN MARKET COMMENTS FRIDAY – The market has been able to find support above the 200-day MA, but resistance at the 100-day MA is close by.
The same issues that have kept us in this range are still in play. The Fed plans to keep rates “higher for longer”. The PPI/CPI came in a little hotter than expected so that will keep them in that mode.
Earnings season kicked off this morning and JPM/WFC are bouncing after the number Both are in downtrends. Earnings season typically keeps short sellers at bay. In two weeks, mega cap tech companies will report and that will coincide with a seasonally bullish period. That also syncs up with the next FOMC meeting.
I am not expecting a big year end rally, but we could challenge the high of the year. There will still be bid checks along the way to confirm that buyers are still interested, so don’t expect a big snap-back rally. This is going to be a gradual drift higher with higher lows.
The market tends to keep doing what it has been doing. This has been the prevailing pattern this year. The economy has not fallen off of a cliff after the most aggressive tightening in decades and there are not any signs of a credit crisis. Inflation remains a concern and stock valuations are fairly rich. The Fed is close to the end of its tightening cycle. This backdrop can suit buyers and sellers on any given day and the price action is driven by the most recent headlines.
Swing traders can sell out of the money bullish put spreads on strong stocks. I believe the market will hold the 200-day MA through year end and there is a good chance it will start to grind higher from this level.
Overseas markets were down overnight. We also saw heavy selling in bonds yesterday (higher yields). Both will keep a lid on the market this morning. 1OP is in a bullish cycle and it is spiking. Financials could provide an early boost, but the sector has been weak and this could just be short covering. This move could quickly run out of steam. Yesterday the market looked pretty solid for the first half of the day and then the bottom fell out. We had stacked reds on heavy volume. The market was able to recover most of the losses, but this is a sign that sellers are never far away. I do not like chasing gaps up and the overnight backdrop suggests that this move will quickly run out of steam. With the 100-day MA close by, the upside is limited. If the remainder of the bullish cycle can’t get us close to the high from Thursday with some stacked greens on volume, the first bearish cross is likely to produce. Outside of an oversold bounce in financials, there is nothing else to justify this opening gap up. I would be looking for an opportunity to short early. NFLX is a nice short and we highlighted it in the chat room yesterday. The depth and duration of the drop during the first bearish cycle will tell us if we can expect a gap reversal and it will tell us what type of day we are in for. Given the price action yesterday, I feel we might see an “inside day” with choppy price action. We don’t have the news we need to challenge the 100-day MA.
Gather information. Take the D1 and M5 puzzle pieces and put them together. Know which scenarios are most likely and which ones are most desirable. That context will help you formulate your game plan.
Support is at $431.25 (AVWAPQ) and the 200-day MA. Resistance is at the high from Thursday and the 100-day MA.