Favor the Short Side Until You See This
The market is deeply oversold, watch for a deep low that reverses.
PRE-OPEN MARKET COMMENTS MONDAY – The market made a new low for the year Friday and the losses in the last 10 minutes of trading were probably related to the end of the quarter. This morning the market is taking back those late loses. Overseas markets were soft and I don’t trust this early bounce.
Credit is the greatest concern and issues are starting to surface around the globe. The UK is backstopping its currency and the plunge in the Gilt (bonds) created margin calls for UK pension funds. European banks have been pledging “junk” to secure loans from the ECB for many years and big banks like Credit Suisse are in bad shape. China is easing when the rest of the world is tightening. Their economic growth is declining. Home sales are tanking and property developers are defaulting. The list of issues is long. Central bank money printing kept rates artificially low for decades and persistent inflation is changing the credit landscape.
This is a busy week for domestic economic reports and they include ISM Manufacturing, ISM services, ADP and the jobs report. In general, the jobs numbers should be decent. Initial jobless claims have been low for the last 4 weeks. Strong job growth is what the remaining buyers are latching on to and if that changes we will see a swift round of selling.
China reported a slight improvement in its PMI and it came in at 50.1 vs 49.4 last month. I do not trust their numbers.
Earnings season will begin in 10 days. Typically we see a decent market bid into the releases.
I am expecting a bounce at this level, but I have been watching for those signs for over a week and I am not seeing them. The market continues to drift lower and until we see a big drop (50+ S&P 500 points) that reverses completely intraday, we have to continue to short failed bounces.
The last week in October and the first week in November are typically the most bullish weeks of the year. That is often because the market is bouncing from deeply oversold levels. If we do not get a nice strong bounce into year end, it will be a sign that we have more work to do on the downside in 2023. The next FOMC meeting (November 2nd) will bisect that window.
Support is at the low of the Friday and resistance is at the high from Friday. This is likely to be an “inside day” given the wide range.