This Market Drop Is Just Part of the Process – Stay Long

February 3, 2022

Posted 9:30 AM ET – The market rallied off of support last week and buyers are aggressive. Earnings season is in high gear and the results have been fantastic. The drop during January was swift and deep and we should expect after-shocks and retests. The S&P 500 closed above the 100-day MA yesterday, but that support failed overnight and the futures are down 50 points before the open.

Earnings season has been very strong. After gangbuster results from GOOG and AMD on Tuesday, FB soured the tone yesterday. AMZN will report after the close today. In aggregate, earnings have been good, but high valuations (P/Es) are keeping a lid on the market.

Swing traders are long SPY and we entered at very good levels. Sit back and enjoy the ride. I am not worried about the overnight drop. This move will find support and a higher low double bottom will form. Your bullish put spreads were established at much lower market levels so vega and theta are working in your favor. If you missed the boat on placing these trades, you will have another opportunity once that higher low double bottom forms. The 200-day MA should provide that support.

Day traders, big overnight drops like this take time to be resolved. We are likely to drift lower in a choppy fashion with mixed overlapping candles. Once support is established (1-2 hours) there will be an opportunity to buy. I am not looking for a big bounce off of that low today. Ride that bounce and take profits. I believe that the low of the day and the high from the first sustained bounce (1 hour+) will form a range and we will stay in it during the last half of the day. I am longer term bullish so I am favoring the long side. Buyers have shown their appetite for stocks and I am not looking for more signs of that today.

Support is at the 200-day MA. Resistance is at the 100-day MA.
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