This drop is going to set up longer term bullish swing trades, but we have to be patient.
PRE-OPEN MARKET COMMENTS MONDAY– I’m sure the media outlets have justified the 50 point overnight S&P 500 drop with some nonsense. The market rallied 12% in a month and this is profit taking. In the last few weeks I have warned you that this was coming. The interest rate hikes have not filtered through the economy and Asset Managers are going to be relatively passive for a few months. They want to gauge the impact on activity.
The Fed is in recess and so is DC. The market gets nervous when there is no one minding the shop. You will see recycled news stories and there will be headlines that suggest the bottom is going to fall out. You can expect headlines like, “US tensions with China escalate.” Investors will worry that we are going to war with China.
Know that this is common for August. I don’t know what the headlines will be, but they will flush out weak hands. We are in a news vacuum and I have seen similar many, many times.
Longer term swing traders need to take gains on their bullish put spreads. Those trades were in great shape and I suggested reeling them in for pennies last week. I also advised you NOT to sell more. We need to see the depth, speed and duration of this market drop. There will be an opportunity to reload. It might take days, or it could take weeks. We need to gauge the price action.
Day traders need to watch the price action early. Friday we had a bear trend day and this is a big move lower. 1OP will start off on a bearish cross after a massive spike Friday and I suspect the first move today will be down. I will provide market comments in the chat room early.
Support is $417.50 and resistance is the close from Friday.