Posted 10:15 AM ET – Market volatility will subside towards the end of the month. The war in Ukraine and the upcoming FOMC meeting will keep uncertainty elevated.
Jerome Powell will testify before the House again today. I am not expecting anything new today. He favors a quarter point interest rate hike in two weeks and that is better than feared. That was welcome news for the market yesterday. He also sees the possibility of raising rates .25% at each subsequent meeting.
Russia continues to advance in the Ukraine and the economic sanctions will spark civil unrest in Russia. The ruble has lost 50% of its value and the assets of its central bank have been frozen. International companies have stopped shipping products to Russia. China is not sanctioning Russia. They have military ambitions of their own and they are quietly gauging the world’s response. Russia has reserves at the PBOC and they will use them to purchase goods. China will also buy as much cheap oil as it can get its hands on.
Inflation is hitting levels we have not seen in 40 years. Bill Gross feels that we could be entering a period of stagflation where upward pressures on prices negatively impact consumption. CPI and PPI will be released next week and we will see if that influences Fed officials. Powell said that he has not witnessed this level of persistent inflation.
The PMIs in Europe were on the light side and China’s PMI was as well. Initial jobless claims were better than expected and that could bode well for the jobs report tomorrow. ISM services will be posted after the open today.
Swing traders are long SPY at $430 from the open last Friday. I like the market at this level from a 2-3 month perspective, but short-term swings trader still need to be cautious. I feel that any dip between now and the FOMC meeting will be a good entry point for bullish put spreads. The SPY $425 level has been tested multiple times since last July and I believe it is going to hold.
Day traders should favor the long side. I like the price action this week and support is forming. There is no reason to chase this opening gap higher. There are plenty of dark clouds and there will be opportunities to get long. If we hold the gap up for 45 minutes and we get a bullish 1OP divergence I will buy. If I see stacked red candles consecutively with little to no overlap in the first 30 minutes I will know that much of the gap will fill and I will wait for support. This scenario is fairly unlikely (20%). A more likely scenario is a choppy drift lower with mixed candles and a trading channel. Those typically end with a selling climax and a bullish candle (bullish hammer or bullish engulf). If the decline is shallow and brief, we will know the bid is strong. Wait for support and favor the long side.
Support is at $432. Resistance is at $445.