Market Will Test Major Horizontal Resistance Today
Posted 9:30 AM ET – Today the market will test a critical horizontal resistance level at SPY $281. Trump extended the tariff deadline with China and a new date was not scheduled – it might not be needed. He said that a summit with Xi will be scheduled at Mira Lago when they have an agreement. China’s market rallied 5% on the announcement and that is lifting global markets.
Economic conditions in China are soft and the government has ordered banks to increase business lending. The PBOC has eased 5 times in the last year and loose monetary policy has not been able to stop the bleeding. China will post its PMI Thursday morning and this will be an important number. Trade negotiations are climaxing and I believe they will “pad” the number until an agreement is reached.
Theresa May postponed the next vote until March 12th. That is only 17 days before the Brexit deadline and Parliament has already voted not to extend it. Regulators in the US and England are taking measures to ensure that trillions of dollars in derivatives contracts are not disrupted during Brexit. This is a potential train wreck.
Trump will meet with Kim Jong-un this week and it should not be much of a market mover.
Germany’s GDP increased a meager .2% and finance Minister said that they will avoid a recession. Economic activity in Europe and Japan is weak.
Domestic economic growth is also showing signs of strain (retail sales, durable goods orders and the Philly Fed). GDP will be released Thursday morning.
The Fed minutes last week were neutral. They will curb the balance sheet roll-off (dovish) and they expect to hike rates at least once this year (hawkish). The market is ahead of itself and no rate hikes are priced in.
Earnings season was excellent, but stocks are trading at the upper end of their valuation range (forward P/E of 16).
Swing traders need to remain sidelined. The news has been very “market friendly” the last month, but the catalysts are winding down. Momentum is fueling the rally and we are due for a pullback. I believe that every economic release gets us closer to the drop. Short the SPY if it trades below $274 and use $276 as your stop on a closing basis. I don’t believe we will hit that level today. We need soft economic data to spark a selloff. It’s difficult to sit back and watch the market rally 10 points each day. Just remember the 100 point down days that we had two months ago. When conditions sour, they fall apart very quickly.
Day traders should not chase the opening rally. The S&P 500 will run up to horizontal resistance on the open and the upside is limited. I believe the best approach is to buy a dip once support is established. The news that came out over the weekend (tariff extension) was already priced into the market and this could be a “sell the news” event. Once the price action settles down, use the first hour range as your guide. Most days we have stayed in the range and you need to fade the extremes. If by chance we breakout of that range you should favor that side.
I’m expecting horizontal resistance at SPY $281 to hold. If the market rallies above it, we will use that as an entry point for a short position when it is breached.
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