The S&P 500 will open 40 points higher this morning. There wasn’t much in the way of incremental news, but the US 10-year Treasury Note has bounced off of the one-year low. Interest rates have been rising steadily and any pause will be market friendly. Given the recent volatility, I still believe that we will see two-sided price action and swings within a wide trading range.

On a weekly chart the TLT has established support just above the 200-week moving average. Dovish comments from the Fed have been supported by the Treasury Secretary. Janet Yellen was the former Fed Chairman and she believes that the $1.9 trillion stimulus bill will not have a material impact on inflation. This is consistent with inflation adjusted bonds (TIPS) and they currently have an implied inflation rate of 2% (Fed target).

New Coronavirus cases are decreasing and states are reopening their economies.

The stimulus bill is likely to be passed by the House on Wednesday and the bill could be signed by the end of the week. That means that the long-awaited stimulus checks could be received in the next 10 days or so. This stimulus bill will keep sellers at bay.

Stocks are currently priced for a massive economic rebound and I consider them to be “rich”. It will take at least a few months for profits to catch up to current valuations. During the next few months I expect to see plenty of market fluctuations, but they should start to subside. Once the volatility decreases it will be time to consider bullish swing trades. In the last few weeks we have seen heavy selling and I don’t expect that to disappear overnight.

The rally this morning will be about 20 S&P points from the downward sloping trend line that started a month ago. SPY $389 is a resistance level I will be watching. A month ago I thought that a buying climax was possible and after the heavy selling we’ve seen the last few weeks I believe that is less likely.

Swing traders should remain in cash. This is a bounce; don’t bite on the first move higher. We’ve seen lots of nasty days where it felt like the bottom was going to fall out and we’ve seen lots of days where it seemed like the market was going to rocket higher. It’s important to put this move into context and to look at the mixed candles on the daily charts. I have been shaken out of bullish positions and I will patiently wait for clarity. When I see constructive price action I will start to sell out of the money bullish put spreads. One good day does not make a trend.

Day traders need to wait for the bid to be tested this morning. Opening gaps higher are typically tested and there is no need to chase stocks. The stimulus bill is already priced in and the bounce in TLT is just one bar. There wasn’t any incremental news overnight. If the market retraces early in the day you’ll have an opportunity to identify relative strength. If this is a “gap and go” rally I won’t participate to any great degree until we get a pullback. This is the lowest probability trading set up and I plan to be passive if we do not get a pullback on the open. If you rush in and buy stocks you could have the rug pulled out from under you and I won’t risk that. If the market holds the opening gains for 30 minutes (compression) I will use that opportunity to evaluate stocks. A market pullback would be more desirable. Heavy Buying and Relative Strength 30 will be your Option Stalker go to searches on the open.

Support is at the low from yesterday and resistance is at the high from yesterday.