August is typically a slow month and we have overhead resistance.
PRE-OPEN MARKET COMMENTS WEDNESDAY – Tuesday 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. Yesterday the market filled the gap down after the FOMC minutes and it was smacked down again. This is a lower high and it suggests profit taking.
The FOMC minutes reminded us that the Fed is in tightening mode. They will stay on that path until inflation is tamed or until economic conditions weaken. We have not seen either. Initial jobless claims have not started rising so the jobs scene is solid. Philly Fed also beat expectations this morning.
August is typically a slow month. The rats (politicians) have fled DC and they are in recess. Earnings season is winding down and the economic releases are minor. There is very little news to drive the market and after a 12% rally, it is likely to take a breather. At best, we tread water at this level. At worst, we test the 100-day MA.
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 will start the day with a bullish 1OP cycle. The market is flat this morning. If the market struggles to regain $430 this morning and we see mixed overlapping candles, I believe we may have a shorting opportunity. Watch for tiny candles and /or a bearish engulf/bearish hammer if you see this pattern. The bearish cross could produce some selling. If we see stacked green candles early (unlikely) it will be a sign that buyers are going to make another run at the 200-day MA. We have seen some selling pressure the last two days. How we close will be critically important. Late day selling would suggest profit taking. Unfortunately, I believe the most likely scenario today is light volume chop and a lack of direction. Yesterday we compressed the entire day. The FOMC minutes sparked a rally filled the gap and then we returned right back to the level we started from. If 1OP has many little crosses or if it is hugging the zero-line, use caution. It will be a sign that we are in for a slow day. I believe this could be an inside day. Energy looks good pre-open and retail looks weak.
Support is the low from yesterday. Resistance is the high from yesterday and the 200-day MA.