Last week the market passed the critical test and major moving averages in the NASDAQ 100 and the S&P 500 held. Friday stocks rebounded and I believe we will see follow-through buying during this holiday shortened week. This is been a stair-step rally and the price action has been choppy while profits catch up to lofty valuations. Major economic releases should be market friendly and earnings season will be upon us when we return after Easter.

The NASDAQ 100 tested the 100-day moving average and it bounced off of that level. This is important because it was a higher low. Buyers did not feel that we would be able to test the lows from March and they were more aggressive on this dip. Tech stocks have been soft because of the rise in interest rates the last two months. US 10-Year Treasuries (TLT) found support (interest rates have stopped going up) and the bid in tech stocks should improve into earnings season.

The S&P 500 tested the 50-day moving average and it also bounced off of that support level. This is been a three steps forward, two steps backwards rally and we are poised to break through the all-time high in the next few weeks.

This morning there are some nervous jitters over the demise of a hedge fund (Archegos). We saw margin liquidations in their holdings last week and a number of banks have considerable exposure. Credit Suisse (CS) said that it will have a material impact on earnings this quarter. I do not see this as a systemic event and $20 billion will be quickly absorbed.

Last week’s initial jobless claims dropped to 674,000 and that was the best reading in the last few months. States are reopening and employment will improve quickly. Approximately 8% of our labor force is tied to the hospitality industry and the rebound should be swift as restaurants reopen. ADP will release its employment numbers Wednesday and the Unemployment Report will be posted Friday (market closed). This week we will also get official PMI’s and ISM manufacturing on Thursday. Traders will be watching for steady improvement.

The Fed has stated that it will not raise rates until 2024 and that it expects inflation to reach 2.5% this year. They see higher prices as a temporary event and that they will normalize in 2022. This means that we are in a “sweet spot” where strong economic data points should not raise fear that the Fed will tighten.

Stock valuations are stretched, but we almost have another quarter of profits under our belt. Q4 corporate guidance was much better-than-expected and earnings should be healthy. The market bid typically strengthens into earnings season and we are only a few weeks away.

Swing traders are long SPY. Raise your stop to SPY $386 (closing basis). You should be selling out of the money bullish put spreads on stocks with relative strength and heavy volume. I prefer selling bullish put spreads on stocks with strong momentum and technical breakouts through resistance. Sell below technical support and try to keep your spreads inside of a three week window to maximize accelerated time premium decay.

Day traders should look for an early test of support this morning. I believe that the market will rebound fairly quickly. As the market drops on the open find relative strength. Buyers took notice when support levels last week held and overseas markets were fairly strong. The downward sloping trend line for SPY (30 minute bars) was breached and prices should be stable to slightly higher this week. This morning we are simply giving back the gains from the last 30 minutes of trading Friday.

Support is at SPY $391 and resistance is at $396 and the all-time high.