We’ve seen these breakouts before. Here’s how to tell if it is real.
PRE-OPEN MARKET COMMENTS THURSDAY – The reaction to the FOMC statement felt great. The market broke through a major downtrend line on a daily chart. We need to see follow through buying the rest of the week or we will fall back below it. Traders who bought the breakout will be flushed out if this happens and that will accelerate the selling pressure. I did not see anything new in the FOMC statement. The Fed said that they are close to decelerating the pace. We already know that (50 basis points in Sept and 25 the remaining two sessions of the year). I believe that much of the momentum was program driven and those moves can easily be erased.
MSFT and GOOGL had positive earnings reactions and META did not. APPL and AMZN report after the close today.
GDP declined by .9% and that was lower than the consensus estimate of a .5% increase. The deflator (used by Fed to gauge inflation) came in at 8.7% and 8.1% was expected.
I loved the price action yesterday and the market is going to challenge the upside early today. Bullish speculators saw the breakout and they will rush in on the opening bell – they might regret that. I suggest waiting for the price action to unfold. The initial FOMC move is often a fake. I am not bearish. If the market holds the gains in the first 45 min with nice green candles, I am all for trading the long side. The best scenario is a gap higher, a drift lower that shakes out the bullish specs and early support. Look at the SPY M5 July 21st chart. That is what we want. What we do NOT want is the pattern from July 22nd Both of those days the market was bumping up against the trend line.
Support is at $395 and $400. Resistance is at $403. If we can close above $403 this week we have a chance for nice follow through next week. If we close below $395 we can expect some selling pressure as bullish specs get flushed out.