Posted by Pete Stolcers on July 7

Posted 9:30 AM ET – Stocks took another tumble yesterday as hawkish FOMC minutes weighed on the market. Investors are worried that Fed tightening will stifle moderate economic growth. The S&P 500 and the QQQ are hovering above major support levels.

ADP reported that 158,000 new jobs were created in the private sector during the month of June. That is much lighter than expected. I trust this number because ADP processes payrolls for small and medium-size businesses. They have their finger on the pulse. This morning the Unemployment Report showed that 222,000 jobs were created in June. That is better than expected thanks to 30,000 jobs created in the public sector (local governments). The government’s number is always filled with seasonal adjustments and revisions. I have found that the number is particularly unreliable when there is a holiday.

The Fed is steadfast in tightening. Their growth forecasts are moderate and inflation is below their target. Regardless, they plan to unwind a $4 trillion dollar balance sheet and they plan to raise rates again this year. Bond yields are jumping and the only thing that will force them to reconsider is a market correction. As long as stocks tread water near the all-time high they will tighten.

This is the last significant round of news until earnings season. It will begin next week but it won’t crank up for two more weeks. Buyers will start to nibble and major support levels will be preserved. This wave of selling should run its course in the next week.

Swing traders should watch major support levels at SPY $240 and QQQ $135. The market should bounce off of support and we should see a few good weeks of price action. There will be an opportunity to sell out of the money bullish put spreads on stocks that have reported strong earnings.

As September draws closer the selling pressure will build. I believe these support levels will fail. Investors will grow nervous about another rate hike and Trump will be waist deep in the swamp. There will be a good shorting opportunity towards the end of August and a fantastic buying opportunity late in September.

Day traders need to tread cautiously this morning. The early rally looks strong, but we’ve seen these moves reverse. I want to see a brief dip before I get long. Support needs to be tested after a decent round of selling yesterday. If the market is able to hold gains for the first hour and grind higher after a compression I will join the momentum. Resistance is at SPY $242 so that is an important level to watch. If the market can’t advance and it reverses I will favor the short side. I will use the first hour range as my guide knowing that major support is at SPY $240. If we close below SPY $240 I will carry a few puts over the weekend.

I am posting a chart so that you can see the technical support level for QQQ. We are seeing some bona fide selling and I believe we still have work to do on the downside. Once SPY $240 and QQQ $135 have successfully been tested buyers will nibble ahead of earnings season.
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