There will be recycled news that triggers market moves in the next few weeks.
PRE-OPEN MARKET COMMENTS WEDNESDAY – My comments are largely unchanged, but I did add a section about trading dull markets. I liked the price action last week and it suggests that the low of the year will hold. That does not mean that we need to load up on bullish positions. I am still expecting some nervous jitters in August/September. Stock buyers can sell out of the money naked puts below technical support on stocks they want to own. This is a very sound strategy at this juncture.
ISM services will be posted after the open. The jobs report will be posted Friday. It should be pretty good because initial jobless claims have only increased slightly in the last few weeks.
In the last week my bias has changed and at very least I feel that the low of the year is safe. A financial crisis in China still has me spooked, but that will take time to manifest and there will be warning signs along the way. Consequently, we will trade as if they are going through a rough patch and we will not expect the worst.
The headlines were all focused on Pelosi’s visit to Taiwan. That was the “problem du jour” highlighted by the media outlets. If this was such a big deal then why is the market up today? I urge all of you to discount what you hear in the news. Just watch the price action and it will tell you all you need to know. The selling pressure was just a little profit taking at the 100-day MA. Pelosi’s trip had been planned for months.
In the next few weeks the market action is going to die down. Traders will latch on to anything they can. Media outlets love to rebroadcast old news. Trading companies have optical readers that look for key words and that trigger buy/sell programs. They pay the media companies handsomely to have co-location servers. Recycling old news helps these institutions pay for these services. They can spark a quick market move and make some money in the process. There is nothing illegal about it. Just know the headlines before the open. When the market is compressing, take gains and expect some of this nonsense. This is what sparked the selling off of the high yesterday.
I still believe that there will be a soft patch in August/September. Swing traders can sell out of the money bullish put spreads below technical support on stocks that have relative strength. I prefer to keep them short term (3 weeks or less) and they should never span an earnings announcement. The support levels above the short strike price will provide added protection and we will let time decay work its magic. Market dips will give you an opportunity to enter them.
In August the “rats” (politicians) will flee DC when they take recess. When no one is at the helm, the market gets nervous. Know that the recent rate hikes have not cycled through the economy and that analysts are still gauging the impact. Asset Managers will remain relatively passive. They won’t chase rallies, but they will buy dips and a base is forming.
Day traders should be patient. The 100-day MA is providing resistance and we have seen that in the last two days. The gap up this morning was fueled by decent gains in overseas markets. A range has started to form between SPY $407.50 and $413.25. I am not expecting a gap and go pattern. There is not enough good news to justify it. ISM services will be released 30 minutes after the open and I would wait for that reaction. Unfortunately, I believe the market will stay in the range I mentioned. We should see decent movement in the range. The market rug won’t get pulled out from under you, but you will also not have that tailwind. Stocks will have to do all of the heavy lifting and I am still seeing more consistent price action on the long side. 1OP will help you with your timing.
I will be taking some time off and I suggest you do the same in the next few weeks.
Support is at $407.50. Resistance is at $413.25.