We Have the Breakout – We Need Follow Thru

The SPY broke out last week and the volume was decent.

PRE-OPEN MARKET COMMENTS MONDAY – We had a breakout above the D1 down trend line and the 100-day MA. The volume was heavy and we had steady buying into the close Thursday. Friday we had follow through buying.

We have record levels of cash on the sidelines, stock buyback programs and seasonal strength to fuel this move. The list of bearish influences is too long to list. For now, buyers have control.

The PPI will be released tomorrow and retail sales will be released Wednesday.

Yesterday I wrote several articles on price action. As I analyzed the year it was apparent that every bounce was a shorting opportunity. Consequently, we have to treat this one with care. We have a few bullish factors working in our favor and the volume (unlike other times this year) has been decent. That gives us a little added confidence. We should expect continual “bid checks” along the way. As we saw earlier in the year during the market bounces, it opens lower, finds support and then gradually grinds higher once support is confirmed. That results in overlapping green candles. This morning we are going to see a small drop and we want support to be established early. As long as the 100-day MA holds, I will maintain a slightly bullish bias.

Swing traders bought SPY on the open Friday ($395.60). Use a $390 as a stop (closing basis). We want to preserve half of Thursday’s bar. I feel that the market bid is fairly strong here and I like selling OTM bullish put spreads on strong stocks.

Day traders should look for a dull start to the week. The S&P 500 futures are down 10 points and that is a flat open. Overseas markets were neutral to slightly bullish. Given the recent price action, I am favoring the long side. 1OP will start the week off in a bullish spike. I would like to see what the pending bear cycle brings. Any market drop will allow us to evaluate relative strength. Stocks that are breaking through D1 down trend lines, major MAs and horizontal resistance will be our best plays. Watch for heavy volume. My favorite scenario this morning would be a gradual probe for support with mixed overlapping candles. SPY $396.50 was a resistance (now support) level from Friday that I would like to see preserved. If that level holds and we start to see tails under body, I will feel comfortable buying a 1OP bullish cross. We do need to see follow through buying in the next few days and we need to add to the long green D1 candle from Thursday. If this does not happen, the risk of a pullback will increase.

Support is at the 100-day MA and resistance is the 200-day MA.