Yesterday the market was bracing for the worst possible news from the Fed. Their intentions have been clear and they delivered. The table was set for an oversold bounce off of the lows for 2022 and buyers fueled a nice rally once the press conference started. Unfortunately, some of those gains are being given back and the S&P 500 is down 30 points before the open.
The Fed hiked interest rates by 50 basis points and they a leaning towards another 50 basis point rate hike in June. The one piece of dovish news is that the balance sheet roll-off will happen at a slower pace. They cited supply disruption concerns due to Covid-19 in China and inflation due to the war in Ukraine. They also cited robust domestic job growth.
There are many positive and negative influences and that is creating extreme market volatility. Buyers flex their muscles and buy programs kick in. The next day sellers take control and the bottom drops out.
Swing traders with a 3-4 week time horizon should wait patiently in cash. The overnight price action was the “tell”. If the market held the gains from yesterday and we were opening flat to higher, we would have bought the SPY and I would have encouraged you to sell out of the money bullish put spreads on strong stocks this morning. It would have been a sign of interest on the part of buyers. We are not getting that and the “wallets” are back in the pocket. Given the overnight selling, the bounce yesterday appears to have been nothing more than short covering and buy programs. We need to see an instant reversal this morning and I do NOT believe we are going to get one. This is a substantial drop and if buyers were truly interested, we would not be sinking to these levels. Until the SPY closes above $430 we are going to stay sidelined on a swing basis.
Day traders should expect plenty of volatility today. I plan to watch the first 45 minutes and I suspect big moves both ways. If tech stocks do not participate in the bounces it will be hard for the market to reverse course today. We need leadership from more than just healthcare and basic material stocks.
Support is at SPY $420 and resistance is at $429.