Today’s Day Trading Game Plan

March 28, 2023
Author: Peter Stolcers, Founder of OneOption

Don’t expect any sustained directional moves this week. We need good volume.

PRE-OPEN MARKET COMMENTS TUESDAY – The market is trapped in the middle of its 60-day range and it is crossing the major moving averages at will. The calendar is light this week and so is the volume.

Asset Managers are going to wait for the dust to settle in the banking sector and that could take months. They are not going to stick their necks out when the Fed is still tightening, inflation is stubbornly high and when the S&P 500 is trading at a forward P/E of 18. Corporate buy backs have declined 22% Y/Y and companies are raising cash as credit markets tighten. This will soften the market bid.

Swing traders should stick to very short-term trades (overnights). I suspect that the market will make a move higher ahead of earnings season. It kicks off in two weeks and in the absence of new credit issues some buyers will assume the coast is clear. Mega cap tech stocks have been strong and I suggest focusing there. The issue with longer term swings is that the next banking issue (here or abroad) could knock the legs out from under the market.

Day traders need volume. Without it the ranges are going to be compressed and the moves will be very choppy. When it gets like this I like to wait for the first directional move to reveal itself. That usually takes 45 minutes. If the move is choppy with mixed overlapping candles and light volume, I will trade the next reversal. For instance, if we start off with a wimpy rally, I will start looking for shorts and I will wait for 1OP to spike. Then I want to see some bearish hammers, wicks or a bearish engulf. Those are signs of resistance and the rally is running out of steam. We know that the market has been choppy so there is no reason to expect a sustained directional move. When it makes a move and it rests at an extreme, there is a good likelihood we are going to reverse. If buy chance the first move of the day has some decent sized candles of the same color, there is little retracement and the volume is slightly above average, there is a good chance the first move will continue (less than 1/3 of the time currently). In this scenario if the move is higher, I will wait to see what the first bearish 1OP cycle does. If the market holds the gains during most of the cycle I will look for stocks that have strong upward momentum. The next bullish 1OP cross will send the market to a new high of the day. I prefer to trade 45 minutes into the day and for the two hours that follow. I consider that to be the “sweet spot”. I generally trade ½ size later in the day and I look for a closing move when there is 90 minutes left in the trading day. Once the range for the day is in, the afternoon moves tend to be smaller and that is why I “size down”. If you are only looking to day trade, you have to be very patient. If you chase a move you are going to enter poorly and be vulnerable to a reversal. Then you are trapped and your day trades will turn into swing trades.

The action was very dull yesterday and the market is opening flat today. The volume is light and there are not any news events to drive the market. There is Fed speak today (Barr 10 AM ET). Expect a low probability trading day.

Support is at the 100-day MA and resistance is at $402.50.   

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