Pre-Open Market Comments – Monday

Last Thursday the market looked poised to break through the 200-day MA on the heels of a positive reaction to TSLA earnings. Since then, the S&P 500 has shed about 300 points. The selling pressure is heavy and it is coming during a period when we would expect to see market support. Earnings season typically attracts buyers and the bid is fairly strong. When this fails to materialize it is a red flag.

AAPL, FB, AMZN, GOOG and MSFT will report this week. I believe that mega cap tech earnings will be good with the exception of FB. They have subscription issues so I am skeptical of it. The rest are not plagued with supply disruptions and higher labor costs to the extent that other S&P 500 companies are.

Last week I told swing traders with a 3-4 week time horizon to sit tight. That has been good advice and this market drop tells me that it might be a while before we dip our toe in the water. Short term swing traders with a holding period of 1-2 days are able to take advantage of these huge intraday moves, but you have to be very nimble.

Day traders should watch for an early low. After extreme selling the last two days and a gap down this morning you have to be careful trading from the long side. China was down 5% overnight. I told you I smell a rat. On a longer term basis I don’t see the S&P 500 having a sustained rally until China finds support. Long green candles stacked consecutively on heavy volume will mark a short term low. The buying needs to be relentless with very little retracement. Until we see that, bounces are opportunities to get short. Take gains on long red candles and short failed bounces.Support is at SPY $420 and resistance is $426.