Yesterday we saw a swift round of profit taking that tested the 100-day MA. Light volume rallies are vulnerable and we should expect that after a 400 point S&P 500 rally in the last few weeks. If the market can’t recapture the 100-day MA today and close above it, I believe we are going to test the 200-day MA next week.

Ukrainian forces have been able to regain territory and market fears are subsiding. This war will rage on and the human toll is overwhelming. From a market perspective, wars do not have a lasting impact.
China is a concern and it is the biggest market threat in my opinion. It has been the global growth engine for the last 2 decades. Growth is declining and both the non-manufacturing and manufacturing PMIs fell into contraction territory in March. BIDU was added to the list of companies that could be delisted if they do not comply with SEC reporting regulations. Many large property developers did not report earnings citing Covid-19. I believe they are on the ropes and that this is just an excuse. They are struggling to make bond payments and no one knows to what extent (if any) China will provide bailouts.

ADP posted solid job growth earlier in the week and this morning the Unemployment Report was solid (431K). That is a “Goldilocks” number for the market as far as I am concerned. Not too hot and not too cold. It is a sign of strong economic growth and this level of employment can support interest rate hikes. The worst case scenario is job losses and inflation induced interest rate hikes.

Earnings season is approaching and that typically attracts buyers. End of month/beginning of the month fund buying is also supporting the market.

Swing traders do not have a longer term SPY position because we have been expecting a dip and I mentioned this in my comments yesterday. I want to see profit taking and I want to gauge support. If the market drifts down to the 200-day MA and it bounces before it gets there, I will feel confident enough to buy SPY and hold it through April. If the market attacks the 200-day MA and it easily falls back through it, I will stay in cash. My comments to swing traders in this section are intended for holding periods that are 3 weeks or longer. For that timeline I still believe cash is king. Selling out of the money bullish put spreads on strong stocks is viable, but those spreads need to be sold below major technical support. If the SPY closes below the 200-day MA, I would close those positions and wait for support. I do like the support level that has been established at SPY $420 on a longer term basis and I want to see the next market decline find support well above $430. When we see this, we can start selling some OTM bullish put spreads fairly aggressively into earnings season.

Day traders should look for an opportunity to short this morning. After a heavy round of selling late yesterday we are likely to test the downside. The action was extremely dull the last two days and we witnessed a very gradual drift lower with mixed overlapping candles. The trend strength was weak and typically we would see some bounces with this type of price action, but we didn’t. It was as if programs pushed the SPY across the finish line and then everyone watched to see who was going to fuel the next leg of the rally. After the high from Tuesday, buyers put their wallets back in their pockets and we had a complete buyers boycott. Eventually the drift lower gathered momentum and buyers pulled bids. We hit an air pocket and sell stops were triggered. The speed with which we attacked the 100-day MA tells me that we are going to see more selling and I am leaning bearish for the next week. That bias is supported by all of the sell signals we have across all time frames for SPY. With that in mind, the best scenario (30%) is a wimpy rally with mixed candles that stalls at the 100-day MA. I will be ready to short that. If the selling yesterday was all program/end of quarter generated we will see stacked green candles that blow through the 100-day MA and we never look back (10%). I feel this is unlikely, but it would be longer term bullish. That is the type of buying conviction you want to see longer term. I also feel that a gradual drift lower is likely (30%). I will be looking for stocks that have been laggards and that finally caught a bid last week. Those up trendlines when breached would product a bearish flag pattern.

Support is at the 200-day MA and resistance is at the 100-day MA