Small Relief Bounce Today

Buyers are encouraged that the 100-day MA held. The volume is likely to dry up today.

PRE-OPEN MARKET COMMENTS THURSDAY – There is not much overnight news. China is loosening Covid-19 restrictions and their market is up overnight. The ECB has Fed Speak today and European markets are flat. The 100-day MA held yesterday and we are getting a small relief bounce this morning. Initial jobless claims were in line this morning.

The PPI will be released Friday and traders could be in wait and see mode for that number. The CPI will be released Tuesday, but I believe that most of the inflation fireworks (if any) will happen tomorrow. By next Tuesday, all eyes will be on the FOMC statement Wednesday. Analysts are expecting a 50 basis point rate hike with indications of 25 basis point rate hikes in January and February.

I would view the action this morning as a relief rally. We had some decent selling Monday and Tuesday and that might have been a bit overdone (given the context of a choppy low volume market the last two weeks). Buyers are encouraged by the 100-day MA holding yesterday.

Longer term swing traders should remain sidelined. If you sold OTM bullish put spreads, use the 100-day MA on SPY as your guide and hold the positions as long as it closes above it.

Day traders should not rush in to buy the open today. Wait for support to be confirmed. Stacked consecutive red candles would indicate a gap reversal and pattern would test the 100-day MA. This is unlikely in my opinion (10%). The worst trading scenario is a gap and go. I would miss most of that because I do not what to chase when the trend this week has been down. A mild bid check with mixed overlapping candles where half of the gap is preserved is out best scenario. Once support is confirmed, that will set up a good entry for longs. I believe we will see a little relief bounce today. Then the volume will dry up and we will wait for the PPI.

Support is at the 100-day MA and resistance is at $396 and $400.