Powell’s hawkish remarks changed the backdrop and this time sellers will have a running start at the major MAs. Watch SPY $393.
PRE-OPEN MARKET COMMENTS THURSDAY – The Fed is as hawkish as can be and the market is pricing in an 80% chance of a 50 basis point rate hike in two weeks. That changed this week and it is significant.
ADP was stronger than expected and tomorrow’s jobs report is also likely to be strong since the 4-week average for initial jobless claims has been low. “Good news is bad news.” As long as the economy is on strong footing, the Fed will lean into that and they will keep tightening.
The CPI will be released next Tuesday (March 14th). That will create some nervous jitters. China’s CPI rose less than expected (1% y/y) and PPI fell (-1.4%).
In the short run, I am expecting a rough patch for the next two weeks.
Swing traders are long from $409. This is a longer term position that I would add to, but probably not until late summer. I favor selling out of the money bullish put spreads and I really like selling OTM naked puts on stocks I want to buy. That is a way to generate income while the market is in this bottoming phase and the strategy will force me to buy stocks I want to own at lower prices. That is one method for gradually scaling into long positions. Manage the positions you have on now, but don’t add to them. Let’s gauge how well the major moving averages hold up in the next two weeks. If that support holds, we will resume. If not, we will adjust our bullish put spreads and take assignment on stocks we want to own.
Day traders should expect a fairly dull day. The gradual drift lower the last few weeks culminated with a nice bounce. That rebound was quickly squashed by Powell’s testimony Tuesday. Sellers will have a running start at the major moving averages from this level. All of the MAs are converging and that strengthens the support level. There is not enough overnight news to generate the momentum needed to attack them today. We are likely to be in “wait and see mode”. There is likely to be a negative bias based on the Fed’s intentions. If there is going to be a move today, it favors the downside. Any bounce that stalls will set up a good opportunity to short today. A strong jobs number Friday could generate the momentum needed to challenge those MAs. The Fed has been leaning on strong employment data and it would pave the way for more tightening. If hourly wages increase by more than .4% that will ignite inflation fear and we are going to test SPY $393. That is the level to watch.
My bias has shifted from neutral/slightly bullish to neutral longer-term. If the reaction to the jobs report is negative, I will short for the day. Only a reaction to a major news release could generate the momentum needed to push us through major technical support. It is possible that the jobs report gets us to the major MAs and then the CPI pushes us through. The market bid has strengthened in the last few months and it is going to take something big to send the market through $393. Remember, we don’t want to poke at support, we want to attack it and destroy it. If we do, I have no issue adjusting my bias. We’ve spent time above the MAs and the price action has been two-sided. Until that support is obliterated, I will operate under the premise that it is going to hold.
Support is at the 200-day MA. The 50-day MA is right at this level. Resistance is the high from Tuesday.