Bleeding Needs To End Today

Beginning of the month fund buying needs to end the drift lower or the major MAs will be tested.

PRE-OPEN MARKET COMMENTS TUESDAY – The biggest overnight news was China’s manufacturing PMI. It came in at 52.6 and that was the highest reading in more than a decade. They are coming out of the Covid-19 shut down, but this could simply be a bounce from a backlog of orders. ISM manufacturing will be posted after the open today.

The market has been in a gradual drift lower. The candle bodies are tiny and the intraday ranges are compressing. The 20-day ATR is at $6 for the SPY vs $9 in November. This is a sign of a weak trend. The volume during this decline has been above average and the best move of the day came late yesterday when the market dropped. The overnight rally sparked by China’s PMI has been erased and the market will test the downside on the open today.

If the market can’t stop this slow bleed, it will test the major moving averages. I was expecting to see a bounce in here and it has not materialized. This is the beginning of the month and we should see some fund buying. If the market dies a slow death again today, it will be a sign that any buying is offset by selling pressure and that we are likely to keep drifting lower.

Swing Traders, we will stay long the core position from SPY $409. If the market breaches the 100-day MA with a long red candle and it closes below it, we will exit and wait for a better entry point. We are right at those major MAs. If your stocks are maintaining relative strength and your bullish put spreads are holding technical support, stick with them as long as the SPY holds the 100-day MA. If that is breached and we close below it, buy back your spreads. I would not add to those positions until we see a long green candle on volume. I do have a few naked puts I am short on stocks I want to buy. I still like that strategy here.

Day traders should expect some early movement. Overnight the S&P 500 has had a good range. Let the market chop around and wait for the ISM number in 30 minutes. The compressed intraday price action the last few weeks should have you treading cautiously on the open. When we get a move to an extreme, watch for signs that the move is getting tired. Then look for opportunities the other way.

Support is at the 200-day MA. and resistance is at the 50-day MA and $400.