The market is in a news vacuum and this conference will determine market direction. Today will be like waiting for an FOMC statement.
PRE-OPEN MARKET COMMENTS THURSDAY–August is a slow month. The market had a 12% bounce in a month and now we are seeing some profit taking. The bleeding has stopped ahead of the Jackson Hole conference and we might be in for a slow day. In the absence of market driving news, this is like waiting for an FOMC statement and it is the last time we will hear from the Fed in almost a month.
This morning GDP (second estimate) came in slightly better than expected (-.6 vs -.9). The price deflator which measures inflation came in at 8.9% vs an initial reading of 8.7%. Initial jobless claims were lower than expected and there has not been a spike. That bodes well for the jobs report next week.
China announced a stimulus plan and that has provided a market boost this morning.
Powel will speak at the Jackson Hole conference tomorrow. The Fed has been very vocal and I don’t expect 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.
The reaction tomorrow and Monday is critical. 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.
If the reaction to the Jackson Hole speech is positive, we will form support into the Labor Day weekend. We are not seeing any deterioration in economic activity and until we do, the market bid will remain strong.
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. I am fairly bullish here, I just need to gauge the selling pressure and the conference tomorrow will help me do that.
Day traders need to expect that this is going to be a dull day. Temptation is your biggest enemy. Until you see nice stacked consecutive candles of a single color, you should not be trading. We had a couple of nice moves yesterday. 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