Posted 9:30 AM Et – PRE-OPEN MARKET COMMENTS TUESDAY – Yesterday the S&P 500 tried to rally above the 200-day MA and it was smacked down. Hawkish comments from Fed Chairman Powell were a reminder that the tone is hawkish, but there was no new information. The market closed right where it opened Monday (doji) and the range was substantial. That is a sign of indecision.
The issues plaguing the market (inflation, Fed tightening and the war in Ukraine) have not improved, but the initial shock of these events is starting to wane. The first rate hike by the Fed will not have much of an impact, but they plan to hike by 25 points for each of the remaining 7 meetings this year. The cumulative effect will matter, but economic effect may not be known for many months.
The economic calendar is light this week.
I am always mindful of news regarding Chinese property developers. Many of them are not going to report earnings on time and that is very bearish. Evergrande found out that a bank had seized $2B that it was using to collateralize other loans. A credit crisis in China would make 2008/2009 look like child’s play. This is something we need to watch very carefully. This is the biggest market threat.
Swing traders with a 3+ week horizon should stay sidelined until we see a capitulation low or a series of closes above the 200-day MA. After a 12-year bull market rally it is natural to look at every dip as a buying opportunity. Conditions are changing. Not one Asset Manager is looking at the SPY chart and thinking that this will be their last chance to buy stocks at this level. The SPY is spending a lot of time under the 200-day MA and there is a death cross (50-day MA < 200-day MA). This is a warning sign and we need to error on the side of caution.Day traders should expect another day with two-sided action. Buyers want to see a breakout above the 200-day MA in the next day or two. If we break through that level on the first attempt today it would be bullish (10%). If the market tries to breakout and we see a series of red candles after that test we will know that resistance is firm (20%). If the S&P 500 is not able to close above the 200-day MA this week, we will see a round of profit taking and the downward sloping trading channel will be restored. Yesterday we saw long candles in both directions. If you are in a nice trade, take gains. You need to avoid these phantom reversals.Support is at SPY $437and $441. Resistance is at the 200-day MA. . .