Yesterday the S&P 500 took a breather after a 400 point run since the FOMC statement. The rally has come on light volume and that makes it vulnerable to profit taking.

The March Fed rate hike means nothing. Bond yields are still at historic lows, but that will change. Fed officials are talking about the possibility of two consecutive 50 basis point rate hikes in May and June. Those would certainly have an economic/market impact. As those dates draw nearer, we are likely to see more selling pressure.

Ukrainian forces have been able to regain territory and market fears are subsiding. This war will rage on and the human toll is overwhelming. From a market perspective, wars do not have a lasting impact.
China is a concern and it is the biggest market threat in my opinion. It has been the global growth engine for the last 2 decades. Growth is declining and both the non-manufacturing and manufacturing PMIs fell into contraction territory in March. BIDU was added to the list of companies that could be delisted if they do not comply with SEC reporting regulations. Many large property developers did not report earnings citing Covid-19. I believe they are on the ropes and that this is just an excuse. They are struggling to make bond payments and no one knows to what extent (if any) China will provide bailouts.
Earnings season is approaching and that typically attracts buyers. End of month/beginning of the month fund buying is also supporting the market.

Swing traders should watch for a market dip in the next week. I suggest selling out of the money bullish put spreads on strong stocks that have strong technical support when we get that dip. Stay short term (2-3 weeks). I feel that earnings season will keep buyers engaged for a few weeks. As we get closer to May, the selling pressure will return as the next FOMC meeting approaches. I do not trust this market and that is why I am not suggesting a longer term position in SPY. The largest rate hikes are yet to come.

Day traders should prepare for a dull day. The action yesterday was miserable and we saw tiny bodied mixed candles and a gradual drift lower. The jobs report will be released tomorrow and that might keep us in a holding pattern today. ADP was in line with expectations and the jobs report should be as well. The opening will be flat today. I would prefer that the market tests support first because I would prefer to trade from the long side and I want to get that out of the way early. The recent market trend has been higher. Once that support is confirmed, I will buy stocks with relative strength and heavy volume breakouts. If the market tests the upside I will be looking for nice long consecutive green candles that do not retrace. I would like to see at least 3 in a row. That would tell me that buyers are still engaged. If I see mixed candles with overlap during the rally it will be a sign that there is no momentum and that we are likely to see reversals both ways. If this rally stalls for more than a few days, the 100-day and possibly the 200-day MA will be tested. A key pattern to watch for is a gap up and a reversal that leads to a bearish trend day. If we see that a short term top will be in.

The SPY signals are mixed at the start of the day. That is a warning sign to keep your trading light. This is likely to be an “inside day” and that would be a low probability environment.

Support is at $456.60 and resistance is at $462.