The global backdrop is bearish and there are many signs that economic growth is deteriorating. Some of the largest sovereigns are supporting their bond market and currencies. Central bank intervention is never a positive.
Does all of this mean that the market lows are in? No. I am not suggesting that. The headlines are as bearish as they can be. I want to temper your bearishness and I know how the Fed plays the game. I am going to trade this bounce as long as I can and I am going to treat it as a bounce.
Swing traders are long SPY ($379). Stop out if the SPY closes below $385 today (check it in the last 5 minutes of trading). That level needs to hold. I am in “plug your nose and buy” mode. We are going to keep moving our stop up as the market moves higher.
Day traders should watch for this. After a big run Friday, the gains will be challenged. The headlines over the weekend were negative. In general, overseas markets were slightly higher. Our best case scenario is a wimpy drift lower with mixed overlapping candles. That will be a sign that buyers are engaged. I don’t want the SPY to drop below $385. A move below that level would suggest that Asset Managers do not have FOMO and we need FOMO if we are going to get a year-end rally. I want to see a brief shallow dip and a nice recovery with stacked green candles. If I get that I will trade from the long side with confidence. If we see organized selling (consecutive red candles) and a drop below SPY $385, it would suggest that Friday was a fluke and that we can expect two-sided action.
The worst case scenario for us is that we get mixed overlapping candles that last for more than an hour on light volume. That would suggest that we are in “wait and see” mode. If we get this, trim your size and your trade count. Typically, the Monday before the FOMC will still have some decent movement.
Support is at the 50-day MA and resistance is at the 100-day MA.