August is a slow month. Watch for this type of price action. It will tell us how low we go.
PRE-OPEN MARKET COMMENTS WEDNESDAY–August is a slow month. The market had a 12% bounce in a month and now we are seeing some profit taking.
How long will the drop last and how deep might it be? The price action the rest of the week will provide important information. Here are some of the clues to watch for.
Immediate follow though selling will be a sign that sellers are still anxious to unload stocks. We are one bad day from testing the 100-day MA and if we attack it this week, that will be a bearish sign. Bears want a nice long red candle through the 100-day MA on the first attempt. Price action of that nature will be a sign that Asset Managers are still in risk off mode.
If the market gradually inches its way down to the 100-day MA, it will be a sign that buyers are engaged especially if that move comes on light volume.
The news is light. Durable Goods orders were flat. It is a volatile number and it does not typically have a big market impact. This is the second estimate for GDP so that is not likely to move the needle either.
Powel will speak at the Jackson Hole conference and that will be the big news of the week. The Fed has been very vocal and I don’t see anything new. As long as economic numbers remain solid and as long as inflation is running hot, the Fed will hike rates as much as they can. This message will be repeated and it will be a splash of cold water.
Swing traders need to look for stocks that have broken technical resistance the last few weeks on heavy volume and that are treading water during this market drop. Those stocks want to move higher and they will be excellent bullish put spread candidates when the market finds support. The duration and magnitude of the market bounce in the last month was impressive. It is a sign of support and I believe that the low of the year is going to hold. I would be pretty surprised if we drop below SPY $390. There is simply too much money sloshing around on the sidelines. Watch the price action this week and start getting your list together.
Day traders need to expect that this is going to be a dull day. The price action the last two days has been atrocious. Temptation is your biggest enemy. Until you see nice stacked consecutive candles of a single color, you should not be trading. You also want to see heavy volume and nice clean 1OP cycles with nice peaks and troughs. Error on the side of not trading. Trim your size and trade count. The market will not help or hinder and the stock will have to do all of the work. If you find nice sector/group rotation and the stock has volume, you might have a good candidate. You don’t need more than a good trade or two.
Support is at $410 and resistance is at $417.50