Posted by Pete Stolcers on May 24
Posted 9:30 AM ET – I am going to keep my comments very brief today. The market has been gradually drifting down to major support and I believe the 200-day moving average will be tested in the next two weeks. Trade rhetoric pushes the market up one day and down the next. The net change is negligible and the daily chart is littered with doji’s and two-day reversals.
A trade deal with China before the G20 meeting (June 28th) is unlikely. Trump and Xi will meet and most analysts believe the tone will remain cordial until then. You know from my comments that I don’t believe a US/China trade deal will happen before the 2020 election.
A trade deal with China will not stem the global economic decline. China’s stimulus (fiscal and monetary) has been aggressive during the last year and it is not bearing fruit. They will post their official PMI next week and it will be an important number. The EU and Japan posted weak flash PMI’s yesterday.
As long as domestic economic activity is stable, investors seem willing to hold stocks. ISM manufacturing and ISM services came in light two weeks ago. We need to watch our economic data points very closely. It would be unusual for us to maintain current levels when the rest of the world is contracting.
The FOMC minutes revealed a neutral policy. The Fed is content with current interest rates.
Stock valuations are at the upper end of their valuation range so there is room on the downside.
Swing traders should remain in cash. We will wait for the major moving averages to be tested. If global economic activity is stable we will view that as a buying opportunity. If the market breaches the 200-day MA and it stays below it for days, we will consider short positions. I also want to see a drop in global economic activity before we short.
Day traders should watch the action of the first three hours. If there are 3 consecutive green candles closing on their high, buy. If the first three bars are red with closes near the low of the bar, short. If the first three bars are small and mixed, wait for the market to establish a direction. We are in pre-holiday mode and the first hour range is likely to hold. Volume will decline throughout the day and Tuesday will be light as well. After the first hour of trading I will be inclined to fade the extremes. Resistance is at $285 (small resistance at $283.60) and support is at $280.
Please take time this weekend to honor the men and women who have proudly served this great nation.
Happy Memorial Day!
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