This is going to be a low probability trading day. Be patient and wait for this move to set up.
PRE-OPEN MARKET COMMENTS TUESDAY – The market is trapped in a range and the volume the last few weeks has been extremely low. This is what “basing” looks like. Buyers and sellers are paired off. There is support near the low end of the range and resistance at the upper end.
Buyers take comfort knowing that Fed tightening is closer to the end than the beginning. Jobs have remained relatively strong and the “soft landing” scenario is still possible. Valuations are high and there is no reason to chase stocks. Consequently, they are not aggressively buying at the high end of the range.
Sellers are not convinced that a “soft landing” is possible. The yield curve is inverted and the tightening the last 8 months is just starting to take a toll on activity. Last week the global economic releases were “soft”. They also believe that “where there is smoke, there is fire” and that a credit crisis is still possible.
Both sides are waiting for the next catalyst and this is a “news driven” market. Tomorrow, the CPI will be released along with the FOMC minutes. Thursday the PPI will be released. Friday, JPM kicks off earnings season and that will drive the action. Mega cap tech stocks are still two weeks away from reporting.
Swing traders should stay sidelined and wait for the CPI reaction.
Day traders, there’s good news and bad news. The good news is that the action will pick up tomorrow. The bad news is that today is likely to be dead. Institutions are not going to take big positions ahead of the CPI and the volume is likely to be very light today. The open will be flat and overseas markets were generally up (slightly). Expect a repeat of yesterday. We are likely to see extremely low volume. I don’t know if the “move of the day” will be higher or lower, but we are likely to get one good opportunity today. Watch for a wimpy directional move (mixed overlapping candles) that runs out of gas (tiny bodied candles and wicks/tails). That reversal will be worth trading if it syncs up with a 1OP cross. Bullish/bearish hammers or bullish/bearish engulfing candles at an extreme will serve as confirmation. You don’t have to be active. You need one good move just like yesterday. Be patient and wait for the set up. This is going to be a light volume day.
Support is at $405.50 and resistance is at $411.50.