A Big Breakout Looms

January 13, 2023
Author: Peter Stolcers, Founder of OneOption

The market is compressing and buyers and sellers are active. We know that from the volume.

PRE-OPEN MARKET COMMENTS FRIDAY – It is Friday the 13th so it is only fitting that the S&P 500 is down 40 points before the open. Bank earnings and Jaime Dimon’s comments about a recession are responsible for the drop if you read comments from the media outlets. This is hogwash. There are greater forces in play.

How about this headline? “Banks post good results, but prices already reflected that and profit taking has set in as SPY fails to clear the 200-day MA.”

Yesterday we saw long mixed candles on heavy volume early and then a tight compression on heavy volume at the 200-day MA. This is a sign that buyers and sellers are aggressive at these levels. The price action is compressing around the 200-day and the 100-day MAs. Those crosses hare happening with greater frequency and that makes them less meaningful. A D1 wedge is forming on the SPY and that is much more important. The market is coiling like a spring and we are going to break out one way or the other. In the meantime, expect both converging trend lines to be tested.

Longer term swing traders; we might start selling some OTM put spreads in the next week. We want support at $370 to hold. I am getting slightly more bullish.

Day traders, we tested the 200-day MA yesterday and resistance was confirmed. Now we will try the downside. Be flexible and know that buyers and sellers are active. That means we can expect some volatility. I would not short the open because we are fairly close to the 100-day MA. Let’s see what happens. The overnight news was not that damaging in my opinion.

Support is the 100-day MA and resistance is the 200-day MA.

The market is in a wedge formation. Watch for a breakout.

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