This Technical Pattern Is All That Matters

January 25, 2023
Author: Peter Stolcers, Founder of OneOption

The “wedge” formation will be breached in the next week.

PRE-OPEN MARKET COMMENTS WEDNESDAY – The market tested the downward sloping trendline for a second time in six weeks and once again that resistance held. The overnight reaction to Microsoft’s earnings is negative and that will set a bearish backdrop this morning. Sellers are aware that the market breakout was rejected and we are likely to test the 200-day MA today.

Tesla will report earnings after the close today, but AMZN, AAPL, GOOG and META will not report until next week. Tech stocks have been gaining a little momentum, but to put this into perspective, the QQQ has not reached the 200-day MA in almost a year and the SPY has been above it four times since December. Tech stocks are retreating this morning and the S&P 500 is indicated 45 points lower.

The first look at Q4 GDP will be released tomorrow and that makes it somewhat current. The advanced reading gets a little more attention.

“It’s all about earnings and interest rates.” This is what analysts monitor and the calendar is filled with earnings releases. A week from today the FOMC statement will be released. These events are going to spark buying or selling. Our job is to follow the money and we use technical analysis to do that. The SPY is compressing in a tight wedge formation on a daily chart. The major SMAs (50,100 and 200) are nested in that wedge. They are important for day traders, but from a swing perspective, the wedge is all that matters.

Longer term swing traders need to stay in cash. This is where the “rubber meets the road”.

Day traders favor the short side today. Don’t chase the open. We are going to be within striking distance of the 200-day MA right away. That means shorting instantly has limited room to support. Wait to see what happens. If you get a wimpy bounce, consider it a gift. You can watch the price action. Mixed overlapping candles will tell you that bounce is not going to go far. We want half of the gap preserved. Then you will get a nice entry for shorts. Focus on tech stocks. They have moved off the deck and they have some room to drop.

Support is at the 200-day MA and resistance is at the low from Tuesday.

The decent volume and wedge formation suggest that a breakout is coming soon.

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