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The Market Is Testing Major Resistance
Buyers have not been excited the whole way up and we know that because the volume has been light. Was the CPI good enough to change that?
PRE-OPEN MARKET COMMENTS WEDNESDAY – The market has been 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. This morning the SPY is trying to breakout of a wedge formation. A close above $412 would be bullish.
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. The CPI came in just below expectations (.1% vs .2% expected) and the core inflation was a little higher (.4% vs .3% expected). This afternoon the FOMC minutes will be released. 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 take a ½ long position if the SPY can close above $412 today. Don’t be early. This move looks strong, but a lot can change during the day and after the FOMC minutes.
Day traders are going to finally get some action. Traders have been pent up and we should see some volume today. Half of the gains from the initial spike have been given back. This is a sign of volatility. There are buyers and sellers. If the initial move stuck and we were grinding higher, that would be bullish. We are not seeing that. Don’t chase. This is a technical resistance level and the market got here on very light volume. We always want to think in terms of breakouts, but keep in mind that these extremes typically hold. Bullish speculators will be anxious to buy a “long awaited” breakout. They risk getting flushed out on a gap reversal. We need to make sure that this breakout is legit before we get behind it. In the back of your mind you should be telling yourself that a Gap Reversal presents greater opportunity for us than a Gap and Go. I will provide play-by-play commentary as the action unfolds. Wait for that first trade to set up. We will have volume and this is likely to be a good move for us. Instead of scrambling to adjust a poor entry, wait patiently for that ideal window.
Support is at $411.50 and resistance is at $413.75 (pre-open high).
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