PRE-OPEN MARKET COMMENTS THURSDAY – This is a low volume, low probability trading environment and it is likely to stay that way until the FOMC statement next week. SPY $407.50 is a horizontal support level that has been tested in the last week.
The ECB is reducing its asset purchases and they are preparing for tightening. Their interest rates are currently -.5% and the implied interest rate at the end of the year is 1.25%. That suggests that a swift round of tightening is likely. They announced they will raise rates by .25% in July. With a reluctance to raise rates at a faster pace, you have to question the strength of their economy.
Swing traders should remain sidelined. Asset Managers will not buy aggressively until they are able to evaluate the impact of higher interest rates on economic growth. Any drop in the jobs reports or other economic data points will spark selling. It will take a few months to determine if higher rates are weighing on growth.
Day traders need to wait patiently for a window to set-up. The SPY is in a D1 compression (1OSqz yellow). That means we are likely to spend time in this tight range until we have a breakout. I doubt that the CPI tomorrow will be that catalyst even if the number is “hot”. The market has not had much of a reaction to these readings. More than likely we will wait for the FOMC statement next week. If you look at a M15 chart and you scroll back, you will see that it takes 45 minutes for market direction to be established. There was some selling pressure yesterday and the overnight gains have evaporated after the ECB news. The volume is light. Be patient and pick your spots carefully.
Support is at SPY $407.50 and resistance is at $412.50.