Pre-Open Market Comments – Friday

April 29, 2022

Next Wednesday the Fed is expected to hike interest rates by 50 basis points. Even more concerning is the fact that their rhetoric is likely to reflect another 50 basis point hike in June. This is casting a dark cloud over the market and extreme selling has pushed the S&P 500 to within striking distance of the low of the year. I still expect to see nervous jitters for the next few days.

Earnings season typically attracts buyers, but not to this point. That is a sign of “risk off” on the part of Asset Managers. All of the mega cap tech companies have announced and in general the reaction was “soft”. Shorts will be emboldened now that those giants have reported.

Swing traders with a 3-4 week time horizon should wait patiently in cash. Our moment will come after the FOMC meeting. A deep market drop below SPY $380 would provide an excellent buying opportunity, but we need to confirm support. Even then, we are likely to sell out of the money bullish put spreads on strong stocks to take advantage if inflated option implied volatilities. Keep searching for stocks that have excellent earnings reactions and relative strength. A 50 basis point rate hike is expected and the market is expecting a 50 basis point rate hike in June. Once this news has been released, we should see a relief rally like we saw in March. We are not going to predict a bounce, we are going to wait for it and then place some short term swing trades. If we don’t get that bounce, we will wait.

Day traders we did not get the early strength I expected yesterday, but it did materialize. The rally had stacked green candles with little overlap. Much of that was program driven and there was some short covering. This morning some of those gains are being given back. I still expect to see some selling pressure into the FOMC next week, but we have strong horizontal support forming at SPY $415. I don’t plan on trading the open today. We have to watch the price action. If we get a wimpy bounce with mixed overlapping candles on the open, there will be a nice shorting opportunity as the market probes for support. That type of bounce will indicate weak trend strength. The pattern I am more interested in is a wimpy drop on the open with mixed overlapping candles. That will be a sign of a weak down trend and we could get a decent bounce. Was the rally yesterday due to buy programs and short covering ahead of AMZN and AAPL? Was there bona fide buying near a horizontal support level? We don’t know that answer yet. Stay flexible and be patient.

Support is at SPY $415. Resistance is at $429. That wide range reflects volatile conditions.


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