Posted by Pete Stolcers on April 2
Posted 9:30 AM ET – Last week the market bounced off of the 200-day moving average multiple times. The fact that we are testing it with greater frequency is bearish. It is a sign that the selling pressure is heavy and that buyers are not gobbling up stocks at that support level like they were before. On a daily chart you can also see that the market is spending a greater amount of time below the 100-day moving average. I am expecting a bounce into earnings season, but not a rebound.
High tech stocks typically drive optimism during earnings season. That will not be the case this time around. Facebook is under FTC investigation and the fines could be very lofty. The stock has seen multiple downgrades. Google is another social media giant and investors are not waiting around to see if they have similar issues – they are selling now. Amazon is under fire from Trump. He feels they have taken advantage of the Postal Service and they have circumvented state sales tax. This negative backdrop will keep tech enthusiasm at bay this quarter.
China increased tariffs by 25% on 128 US goods (mostly agricultural) last night. This will reignite trade war concerns. It does not sound like the negotiations are going well and China is testing Trump’s mettle (pardon the pun).
Stock valuations are at the high-end of their range at 16.5. This is not “bubblicious”, but there is room for contraction.
The Fed is fairly dovish for the remainder of the year and higher interest rates should not provide much of a headwind as long as economic growth is strong and inflation is contained.
ISM manufacturing, ISM services, ADP and the Unemployment Report will be posted this week. We need to see strong numbers and a .1% increase in hourly wages.
Swing traders should exit long positions on the open. We will lose 15 S&P 500 points based on our entry a week ago and that is a tiny flesh wound. Trade wars caused the last round of selling and the overnight developments will spark fear. The market is spending a greater amount of time below the 100-day MA and that is bearish. Let’s watch from the sidelines and wait for better buying opportunity.
Day traders need to watch the early action. If the market bounces and stalls, look for opportunities to get short. I believe the overnight news is bearish and the downside will be tested.
We have not seen the candle that I’ve been looking for. The market needs to hit an air pocket and it needs to instantly reverse off of that low. The end result will be a very long tail and a body near the high of the day. If you look back at the candle that broke the 200-day moving average in February, that is what I’m looking for. That would signify a capitulation low and buyers would embrace it. The pattern we are seeing now is a constant probe lower and we need to see a selling climax before we buy.
Wait for that air-pocket and reversal.
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