Does the market have gas left in the tank or were fantastic earnings already priced into the market? That was the question that traders have been asking after an 8% rally in one month. Tech giants reported last week and the results were incredible. The market was not able to break out to a new all-time high and I believe we have our answer. Profit takers are more aggressive and this morning it looks like we will probe for support. I am patiently waiting for a dip so that I can buy at a better level.

ISM manufacturing came in at 60.5 yesterday and that was a little light (66.0 expected). Keep in mind that a reading above 60 is still incredibly strong. ISM services and ADP will be released tomorrow and the Unemployment Report will be posted Friday. I am expecting strong results and without the threat of Fed tightening, the news should be market friendly.

China’s composite PMI fell to 53.8 and April from 55.3 in March. That suggests a slowdown in a country that has reopened 10 months ago. We know that Europe’s has been struggling with the virus. Many global economies are shut down because the virus and India is in dire straits. The State Department has issued a “do not travel” warning to 80% of the countries. This will have a global economic impact.

Earnings season has climaxed and by the end of the week we will have heard from 80% of the S&P 500. The results have been stellar and the “beats” have not been this robust in a decade.

I am bullish, but I won’t chase. Swing traders should watch this decline very carefully. Look for stocks that are able to hold recent gains when the market is falling. Stocks that have recently broken out through horizontal resistance after strong earnings will be your best prospects. If the stock holds that breakout and barely retraces, it is poised to move higher. When the market finds support these stocks will jump. This is when you want to get your wish list together. I believe that this market decline will be brief. Levels that I will be watching are $410, $405 and $400 on the SPY.

Day traders should watch during the first 30 minutes. If we see consecutive long red candles stacked one on top of the other in the first 30 minutes this will be a bearish trend day and you should favor the short side. If the market is making a new low for the day after two hours of trading, keep bullish trades to a minimum. Support at SPY $416.50 was tested multiple times last week and it will be breached today. Bullish sentiment has been very high and the depth of this drop will depend on how many “weak hands” are flushed out. The most likely scenario during the first 30 minutes is mixed candles and a lack of direction. That would be a sign that buyers are still engaged. Major economic news is pending and we have a slew of earnings releases in the next few days. Traders will wait to see how the numbers come out. In the last week we have seen equilibrium and buyers and sellers have been paired off. The market has been closing near its open and you can see that by the dojis on a candlestick chart. If the market finds support in the first hour I believe the action will slow down and we will be trapped in a range for the day. If this unfolds, trim your size and trade count. The price action yesterday was very dull.

Support is at $411 and $416.50 and resistance is at the all-time high.