Stocks posted solid gains Tuesday. The S&P 500 closed on its high of the day and above its 50-day MA. Traders digested gains and the market treaded water ahead of major announcements Wednesday. TSLA posted solid results after the close and their guidance is providing a bullish back drop for the market. This morning the S&P 500 is challenging the 200-day MA. We should see decent support through mega cap earnings next week.The overnight news is pretty light.
I am going to suggest staying sidelined if you are a swing trader with a 3-4 week time span. I was looking for an earnings bounce, but this window is very narrow. As we get closer to the May FOMC meeting I believe we will see nervous jitters and selling pressure. Mega cap tech earnings should be good. They are not as affected by supply disruptions, higher labor costs and rising materials costs as other companies are. If you are a short term swing trader with a holding period of a week or less, there will be opportunities to buy in the next week. Don’t overstay your welcome.
Day traders do not need to chase the open. We are going to test the 200-day MA and that is a resistance level that will not be easily penetrated. Here are the signs I will be watching for this morning. I need to know that this rally is legitimate and not just another opening bounce that turns into a gap reversal.
- I want to see the early gains hold steady. I do not want to kiss the 200-day MA and then back off 20 S&P points. We need to stay near the high of the day for an hour. That will tell me that buyers are in control and that they have been able to offset selling pressure.
- I want to see a deep trough in 1OP while the market treads water near the 200-day MA. That will be a bullish divergence if we get one and that will signal that a breakout on the next bullish cross is likely.
- I want to see strong performance in big tech names with stacked green candles and continuation even when the market rally pauses. These stocks have been beaten down and they have lots of upside room. From this level they should be able to stack green candles…. If the move this morning is legitimate.
- I WANT TO SEE SOME DAMN VOLUME!!!
- I want to see late day strength and a close above SPY $450.
Unfortunately, I don’t believe we will see all of these things come together. There are simply too many dark clouds that are looming. I believe a much more likely scenario is program driven buy programs that give the appearance of strong buying and a mediocre test of the 200-day MA that breaks through and then flops around next week as mega cap tech companies report.From a trading standpoint I am bullish so I want to see the market back off from the 200-day MA in the first hour with a gradual decline. Mixed overlapping candles will be a sign that the trend lower is weak and that a buying opportunity will set up. Overseas markets were generally strong so I am not expecting a gap reversal. We will fill in a little of the gap, but the market should find support fairly early. Look for stocks that are breaking through resistance (trendlines and horizontal resistance) on heavy volume.
This is the best trading scenario for day traders today. Pound those algo searches and look for Green Royal Flushes!Support is at the 50-day MA and resistance is at the 200-day MA.