PRE-OPEN MARKET COMMENTS WEDNESDAY – There is plenty of “Fed speak” today, but most of the fireworks were launched during Powell’s speech yesterday. The market has shouldered the news well and it is near the post-FOMC high. Earnings season has climaxed and those results have also attracted buyers. Here’s why I view the price action as bullish.
In December the market tested the SPY $410 level and that was the down trendline that started back in January 2022. That breakout attempt was immediately slapped down and we broke all of the major MAs in the next week and the up trendline that started in October (that was a sign of selling pressure and we are not seeing that now). The market quickly found its footing at the end of December and a bloodbath was avoided. We have a higher low and that is a sign of support. The market recovery was steady from that drop and that tells me that the bid is still fairly strong here. We want to attack the high from last week and we want to clear it in the next week. The small dip after the FOMC tested the breakout and the bid was confirmed. Now we need to see follow through buying. It is typical for shorts to get more aggressive after mega cap tech earnings and they have not been able to overpower buyers.
The QQQ has been strong. It easily cleared a down trendline that dates back to December and that is a sign of “risk on”. There was a “Golden Cross” for the SPY and the 50-day MA is above the 200-day MA. That is typically bullish and it does not happen until there has been a bottoming process.
Swing traders bought the SPY on the open yesterday (SPY $409). I liked the reaction to Powell’s remarks and I did not expect anything new since we just heard from the FOMC a few days ago. The next potential “speedbump” is the CPI next Tuesday. Given the overall price action this year, I view dips as an opportunity to buy. I like selling bullish put spreads on strong stocks that are breaking through technical resistance. This is a “bread and butter” swing trading strategy that we will start using again. Sell OTM bullish put spreads below technical support and let time decay work its magic.
Day traders should expect volatility. Those were some incredible swings after Powell’s speech and it is a sign that buyers and sellers are still active. We have more “Fed speak” today and some of it is taking place right now. China and Japan are down overnight, but the other markets are fairly strong. Let the early selling run its course and let’s see what the pending bearish 1OP cycle brings. If the decline is brief and we bounce immediately, that would be a bullish sign. It would tell us that buyers are scooping dips. If the early drop gains some momentum in the first 30 minutes (stacked red candles and a new lod), that would be a sign of continued volatility and we can expect nice moves both ways. I am favoring the long side. Tech stocks are particularly strong. They have room to run and I am seeing nice consistent price action there. On this initial drop, look for tails, bullish hammers and a bullish engulf near the lod.
Support is at $400 and resistance is at $417.