Last week the market retraced to the 200-day moving average on fears that the Coronavirus is starting to spread as states reopen their economies. California and New York plan to slow down the reopening. Many countries around the world are also seeing a rise in new cases. Good news was been priced into the market and this hiccup has sparked profit-taking. This morning the S&P 500 is going to take out the low from last week and we are poised to test the 100-day moving average this week.

Bullish sentiment was at record highs and investors were overly optimistic. From a technical standpoint the market rallied above the upper end of its trading channel and that typically sparks profit-taking. Bullish speculators will be flushed out this week and that will set up an excellent buying opportunity. We were also seeing a heavy rotation into the laggards and this was another sign that the rally was getting tired.

China’s industrial production and retail sales were slightly lower-than-expected. However, the manufacturing and services PMIs were in expansion territory in May.

Domestic employment is much better-than-expected and that fueled the last leg of this market rally. ISM services and ISM manufacturing were both better than feared.

In another month, Q2 earnings season will kick off. CEOs have been warning that Q2 will be much worse than Q1. This is a “quadruple witch” and that could translate into more market volatility this week. Additionally, many funds will be rebalancing as the quarter comes to an end. Based on the recent market rally we can expect some selling pressure in equities the next two days.

The Fed stands ready to take action if the recovery is sluggish. Politicians are also prepared for another round of stimulus. This safety net will prevent a huge wave of selling and this market drop will provide an excellent entry point for longs once we find support.

President Trump said that the country will not shut down again. Social distancing and masks will help to contain the spread of the virus. Biotech companies are scrambling to develop a vaccine and AstraZeneca is confident they have a cure. They are producing 3 billion doses of their vaccine (which has yet to complete clinical trials) and they plan to start distribution in late September.

Swing traders are in cash. We only have one out of the money bullish put spread and it expires this Friday. Tech stocks have been leading the charge higher and that is where we are going to focus. I believe that the market will test the 100-day MA and that support will hold. We are going to start selling bullish put spreads this week so be ready for action.

Day traders should wait to see if support holds this morning. SPY $300 is a critical level and this will be the third day that we’ve tested it. If the market gradually drifts lower and we breach that price point, we will continue to drop until we reach the 100-day moving average. If the market makes a new low after two hours of trading, favor the short side. If the early drop this morning instantly gains traction and the market rises above the opening price, favor the long side and play the bounce. Don’t overstay your welcome and know that the selling pressure is fairly heavy. If the market makes a new high of the day after two hours of trading we are likely to grind higher and fill in the gap. In this event, focus on the long side. The 1OP indicator will tell us how to position ourselves during the day.

A nice swing trading buying opportunity will set up this week, but don’t be early. Wait for support.