Posted 9:30 AM ET – Yesterday the S&P 500 tried to rally in the first half of the day and when that failed sellers tested the bid. Once the low the day was breached sell stops were triggered and the market drifted lower. I’m not going to read too much into this price action. On a daily chart of the S&P 500 you can see how the market has been in a stair-step pattern where we take three steps forward and two steps backwards. The good news is that the bond selloff has temporarily paused and US 10-Year Treasuries have had four consecutive positive days. Look for choppy trading and a steadily improving bid as we get closer to earnings season.
This morning durable goods orders fell 1.1% (.8% increase was expected). This is a fairly volatile number and it does not typically have a lasting market impact. GDP (third estimate) will be posted tomorrow. The economic calendar is fairly light.
Jerome Powell and Janet Yellen have been testifying this week and the market has not had much of a reaction. The theme has been consistent and the Fed is not going to tighten until employment improves substantially. There is talk of a $3 trillion infrastructure bill, but that is going to meet stiff resistance. In the last 10 months we have spent close to $9 trillion and our national debt is ballooning.
The Coronavirus is spreading in Europe and most of the continent is shut down. Vaccine distribution is not gone well and the EU does not have a stimulus bill like we do in the US. Europe’s economic recovery will take a long time.
Swing traders should remain long SPY. I believe that we are on the brink of a strong economic recovery in the US and the stimulus checks are in hand. With another quarter of profits under our belts, stock valuations will improve during earnings season. The closer we get to earnings season the stronger the bid will become. If the TLT closes above $138 we can start selling out of the money bullish put spreads in the tech sector. Pick stocks with relative strength and heavy volume when they break through technical resistance.
Day traders should go with the flow. The market does not have a clear directional bias on a day-to-day basis. When the move in one direction is exhausted, look for a reversal. Use the 1OP indicator in Option Stalker as your guide. After two hours of trading if the market is making a new low for the day, focus on the short side. After two hours of trading if the market is making a new high for the day, focus on the long side. Once the momentum is established, trading programs drive the move. Watch for sector rotation and ride those coat-tails. We have seen nice intraday moves and there are opportunities.
Support is at SPY $387.50 and resistance is at $394.