Market Drop Should Be Limited Today – Support Is Close and Oil Is Up
Yesterday the market drifted lower and it was able to recover some of its gains. Stocks are weak again this morning and support at SPY $235 will be tested. Major economic releases will be the “driver” this week.
ISM manufacturing was strong yesterday (57.2) and ISM services will be released tomorrow. I’m expecting strong results. ADP will report new job growth in the private sector during the month of March and analysts are expecting 160,000 new jobs. That seems light given last month’s number (298K). Friday’s nonfarm payrolls are projected to grow 180,000. These numbers won’t support a market rally. We need job growth to exceed 250,000 on a regular basis.
Initial jobless claims have been creeping higher in recent weeks and we might not get the strong jobs numbers we need.
The Fed has an aggressive agenda and two more rate hikes are expected this year. Furthermore, the ECB and PBOC have hinted that QE is over. Rising yields are a headwind and we need robust economic numbers.
Earnings season will begin next week and the results should be good. Q4 was decent and guidance was solid.
Political uncertainty is starting to weigh on the market. Investors gave Trump the benefit of the doubt and they are growing impatient. DC is fragmented and the swamp is winning. Trump will focus on low hanging fruit and I expect to see a minor tax cut of some type in the next month.
The market feels “noisy” and it is waiting for news.
Swing traders should hang on call positions as long as the SPY closes above $235. Your exposure should be fairly limited. There hasn’t been any follow-through to the reversal last Monday so we have not added to positions. Without market momentum option buying is a losing proposition. Time decay becomes a factor. If we are stopped out we need to wait on the sidelines. I would not short this market. We need to see major technical damage and sustained selling before we take on a bearish posture. Until we see technical deterioration we will assume that pullbacks are a buying opportunity. The long term trend still points higher.
Day traders need to be patient on the open. Use SPY $235 as your guide. The 50-day MA is at $234 so we have decent technical support nearby. I will be looking for buying opportunities this morning once the selling of abates.
The political landscape is casting a dark cloud over the market. I believe that major economic releases and earnings announcements will shift the focus. Strong activity, jobs and healthy profits will calm nerves. If we get good numbers the market will grind higher. If not, investors will sell first and ask questions later.
Look for a nasty dip on the open and support. Oil is up so the damage should be relatively contained. Financials are the key to any rally. If they can’t find a bid, don’t expect much of a bounce.
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