Yesterday the S&P 500 saw relentless selling that pushed the index down to the lows of the week. Support at SPY $385.80 has been breached and the 50-day moving average ($379.83) has to hold to prevent another leg down. That price point is also the upward sloping trend line that started in November so it is a critical level to watch.

I’ve been mentioning that bonds look like they are poised to rebound after a selling climax. TLT is bouncing this morning and that should help the market.

Interest rates are rising, but the Fed has assured us that they will not tighten until labor conditions improve dramatically. Yesterday we saw a better than feared initial jobless claims number and perhaps employment is improving as the Coronavirus subsides.

The $1.9 trillion stimulus bill will be voted on today by the House. In typical fashion, politicians are including everything they ever wanted into one gigantic package. If they just focused on unemployment benefits extensions, the $1400 stimulus check and bailout money for hard-hit industries I believe the money would already be on its way. The national $15 an hour minimum wage is not going to be part of the bill.

Interest rates are still near historic lows and the recent spike in yields will not remotely impact economic growth. It has sparked a rotation out of tech stocks and into cyclical stocks. While the NASDAQ was falling this week, the Dow Jones Industrial Average made a new high.

Swing traders should watch the support level I have highlighted very closely today. If it holds, this will be an excellent opportunity to sell out of the money bullish put spreads. I believe that the economic recovery is already starting and that the stimulus money will “grease the wheels”. I don’t believe we will see a big market decline given the backdrop. If the market is above the low of the day after two hours of trading and if it is above the 50-day moving average I suggest selling some out of the money bullish put spreads. As long as you can distance yourself from the action, consider selling bullish put spreads on tech stocks. The option IVs are pretty rich for those stocks.

Day traders should expect a bid check early in the day. With the rally in TLT that test might be brief and shallow and it could just be a compression during the first 30 minutes of trading. Make sure that the early gains hold before you buy. If the market starts to drift lower and fill the gap, hold off on long positions. We want to see the low from yesterday preserved and ideally we won’t get anywhere near it. If the market is trading above the low of the day and above the first hour high after two hours of trading, favor the long side. If the market is making a new low of the day after two hours, favor the short side and assume that we are going to close below the 50-day MA and that we could see more selling over the weekend. Market volatility is high and price action will dictate how we trade. I do believe that we are more likely to bounce off of support and trade higher today. You know the Option Stalker searches to use.

Support is at the 50-day moving average and the low from yesterday. Resistance is at the high from yesterday.