When the market does not rally into year end it is a bearish omen.
PRE-OPEN MARKET COMMENTS MONDAY – Last week the market rejected the breakout above the downward sloping trendline that started in December and it breached the 200-day MA with ease. As the week progressed, hawkish FOMC comments pushed the SPY below the 100-day MA and the upward sloping trendline that started in October. This is clearly bearish price action during a period where we typically have seasonal strength.
The news will be very light the rest of the year and we only have 9 trading days left in 2022. Most traders will be happy to see the New Year. If you survived the year – congratulations! You’ve learned a lot and your chances of making it are much higher because of the lessons you learned.
When the market can’t rally into year end, it is a warning sign. I discussed this a year ago and that was an omen for 2022. I suspect that Q1 is going to be nasty in 2023 and we might not find the low until mid-year.
If you look at the bounce from October you can see that the trend was weak. We had mixed overlapping candles and light volume. Sellers have returned and the volume was heavy last week. Some of that was triple witching and some of that volume was related to the FOMC statement. The reason is not of great importance. The fact remains that the price action is bearish.
Swing traders need to stay sidelined.
Day traders should favor the short side. We have a small overnight bounce and when it stalls a good shorting opportunity will surface. Given the selling last week, the bid will be tested at some point today. Europe was up and Asia was down overnight so the action is mixed. Trading activity is going to slow down this week and the news is light. That means you should error on the side of caution the rest of the year. Expect tight trading ranges and light volume. If the market can’t get out of the prior day’s range, it might not move much at all.
Support is at SPY $373 and resistance is at the 100-day MA.