Was there some major news I need to be aware of?
PRE-OPEN MARKET COMMENTS WEDNESDAY – Yesterday the SPY challenged major resistance at the 200-day MA and it was smacked down from that level. That should be expected on the first attempt after a 500 point S&P 500 rally in the last month. This is a sign of profit taking and the S&P 500 is down 35 points before the open.
The 2% interest rate hike since May will not cycle through the economy for at least a couple of months. This is the most progressive tightening since the 1990’s and today the FOMC minutes will be released. Will we learn anything new? No, the Fed has been very vocal. This will simply be a reminder of their intentions and it will temper enthusiasm.
The economic releases this week have been good and this morning Retail Sales increased by .4% (.1% expected). Retailers rallied hard yesterday and most of these moves felt like a short squeeze ahead of earnings. TGT could provide a headwind for the sector and it is down after posting.
Why is the market down? What is the news? What happened? There isn’t any news to justify the drop. The market is over-extended and it hit a major resistance level. Now we are seeing some profit taking after a 500 point S&P 500 rally in the last month. As I stated earlier, we still have not seen the impact of the interest rate hikes and Asset Managers will tread cautiously.
Swing traders sold bullish put spreads a few weeks ago per my suggestion. Those spreads should be trading for pennies. Take gains, wait for a market pullback and get ready to reload. I will be looking for stocks that have been breaking through major resistance levels on heavy volume and that barely retrace during this market drop. You should have a list of stocks already so that you can monitor how they fare during this drop. We might not get more than a few days of selling so be ready. Sell the bullish put spreads below major support and don’t go farther out than the September 16th expiration. We want to be flat heading into the next FOMC meeting.
Day traders we could have a nice opportunity to short this morning. Buying opening dips has been successful and traders will try it again today. If that bounce is wimpy with mixed overlapping candles and we can’t fill more than half of the gap, I will be watching for signs of resistance. 1OP is spiking on a five minute chart. If the bounce stalls and I see tails above body, tiny candles and a bearish engulf/bearish hammer I will short the 1OP bearish cross. Those early buyers could be shaken out. After that initial move, I will be watching for follow through selling. Long red candles stacked and brief/shallow bounces would be a sign of a bear trend day. That would keep me on the short side and it is unlikely. A gradual drift lower with mixed candles and lots of retracement would prompt me to patiently wait for support. I am not bearish and I still prefer trading from the long side. The action could die down ahead of the FOMC minutes so be mindful of that release at 2:00 PM ET.
Support is the low from yesterday and it will be tested right away. Resistance is the high from yesterday (200-day MA).