We’ve Seen This Pattern 3X This Week

March 31, 2023
Author: Peter Stolcers, Founder of OneOption

The breakouts have come on very light volume and the Q1 gains for the S&P 500 can be attributed to a handful of mega cap tech stocks.

PRE-OPEN MARKET COMMENTS FRIDAY – The market has broken a down trendline, but not in a convincing manner. We want these breakouts to occur with long candles and heavy volume. We have neither. Core PCE came in at .3% and that is a touch better than expected. That has sparked a small round of buying before the open, but nothing impressive. The SPY is just above the high from Thursday.

The S&P 500 is above the major MAs, but the volume has been horribly light.

The PMIs out of China were good. The services PMI was 58.2 (55 expected) and manufacturing was 51.9 (51.7 expected). China continues to rebound from the Covid-19 shutdown.  

Eurozone preliminary CPI came in at 6.9% for March (7.1% expected and 8.5% in Feb).

I read that 8 mega cap tech stocks have accounted for the entire Q1 rally in the S&P 500. I’m sure NVDA is one of them. This concentration is not particularly healthy so we need to temper our bullishness.

This is the end of the quarter and we can expect some “window dressing”.   

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. Gap up Monday – retraced. Gap up Wednesday – retraced. Gap up Thursday – retraced. Gap up Friday – don’t chase. Favor the upside, but wait for your window of opportunity. Global markets were up so the backdrop is solid.

Support is at the 50-day MA and resistance is at $407.50.   

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