SPY Surging Thru 100-day MA – Sit Back and Enjoy the Ride

February 2, 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 SPY is surging overnight and it will open above the 100-day MA.

For in depth analysis on how low interest rates and Fed money printing have resulted in a strong appetite for stocks, please read my comments from Monday.

GOOG posted incredible results and it is going to split 20:1… finally. Perhaps AMZN will take notice (earnings Thursday). FB announces after the close today and analysts will be gauging the impact of AAPL’s advertising policy change. AMD also posted gang buster numbers after the close. The QQQ will open above the 200-day MA and money is rotating into tech.

Over one-third of the S&P 500 companies have reported earnings. In aggregate the “beats” are down year-over-year on a percentage basis, but above the 5-year averages. EPS are up 24.3% and that is better than expected (21.4%) and revenue has grown 13.9%. Of the companies that have reported 77% have beaten EPS expectations and that is above the 5-year average (76%). More than three-quarters of companies beat on the top line and that is also better than the 5-year average (68%). These numbers are from FactSet. This will be a busy week for earnings releases (FB tonight and AMZN Thurs).

Swing traders are long SPY and we entered at very good levels. Sit back and enjoy the ride. I am expecting to close above the 100-day MA and we will be able to move our stop up to that level later in the week. Swing traders should be short out of the money bullish put spreads on stocks with strong technical support. You needed to add these spreads progressively and I have been urging you to do that for almost a week. I would not enter here, you missed your window.

Day traders should not chase stocks on the open. Everything is going to gap higher and option bid/ask spreads will be wide. Be patient and watch for these patterns. The most likely scenario (30%) is a gap up, drift higher and compress the rest of the day. This is my least favorite because it will force me to take action immediately. We are going to open above the 100-day MA and after such a big overnight move I am going to be passive. Another likely scenario (30%) will be a gap higher and swift continuation. Bullish speculators will rush in and buy. After the initial surge, profit taking will set in and these weak hands will be flushed out. If this scenario unfolds I will take a short position and I will be watching for a drop into the gap. Long red candles and a fail on the first attempt will tell me that we are going to fill in more of the gap. On a longer term basis I am bullish so I will use this scenario to identify stocks with relative strength. The speed and magnitude of the drop will tell me how aggressive buyers are. A fast, shallow drop that just checks the low of the day would be bullish. An easy fail of the low of the day and long red candles stacked will be a sign that there is profit taking. I will wait for that support and buy. Our best scenario is a choppy drift lower with mixed overlapping candles. That will be a sign that the down trend is not that strong and that support will be established in the first hour. This scenario buys us precious time to find relative strength and to evaluate the price action (30%). A gap reversal with immediate long red candles stacked is not likely (10%) because the overnight earnings news was so strong and 2 tech giants on deck.

Support is at the 100-day MA. Resistance is at SPY $460.
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