The market staged a nice rally off of H1 horizontal support at SPY $444 and it closed above the 200-day MA. This morning we are seeing a nice gap up and it appears the 200-day support is fairly strong.
Earnings season starts next week and all of the other issues plaguing the market will take a temporary “back seat” as analysts gauge profits. Guidance will be critically important. The market bid typically remains strong until mega cap tech companies have reported. That should last through April.
CPI will be released next week and analysts are expecting a reading of 1.2% – wow. If that happens it has to be a drag on the market. More Fed officials are moving towards a 50 basis rate hike in May for this reason.
On a longer term (34-4 week) basis I like sparingly selling OTM bullish put spreads on strong stocks. I do not feel that we have seen the end of volatility and I expect to take some heat along the way. Next week is monthly options expiration and that has been when we typically see some selling pressure. I do not want my trades lasting any longer than that because the May FOMC meeting will make investors nervous.
From a day trading standpoint, I like the vigor with which SPY $444 was defended yesterday and I like the breakout above the 200-day MA. I am favoring the long side. The best scenario this morning is a gradual decline with mixed overlapping candles. That is a sign of weak trend strength and it will set up a good buying opportunity when we find support. Use the 200-day MA as your guide. Do not chase! No matter how the market opens, it is not that strong. Almost every trading day we retrace. You will have a chance to enter well – be patient.Support is at the 200-day MA and resistance is at the 100-day MA.