MARKET SUPPORT ESTABLISHED – SET YOUR PROFIT TARGET AT THIS LEVEL
Posted by Pete Stolcers on October 24
Posted 9:30 AM ET – Yesterday the market tanked on the open and major horizontal support was tested at SPY $268. The low was established early in the day and the S&P 500 briefly recaptured all of the losses. This is the type of price action I’ve been looking for and I believe a “hard bottom” has been revealed. Buyers will gradually start bargain-hunting now that they know support is near.
From a seasonal standpoint we are entering the most bullish period of the year. I am expecting a nice bounce that lasts until the elections. If Republicans gain momentum and polls suggest a possible House victory, the market will rally above the 100-day MA. If polls stay the same, we should grind back to SPY $282.30.
Europe’s flash PMI’s were light (France and Germany in particular) and Japan’s was in line.
Bond yields have eased in recent days. Asset Managers bought bonds in a flight to safety. I’m expecting a softer tone from the Fed after the recent market decline.
Italy is steadfast in its budget and the EU rejected it. We will see how this plays out in coming months, but the EU is very fragmented. The Irish border is keeping it from reaching a Brexit agreement and the EU will be pressured by Trump to get a US agreement in place.
Earnings have been decent, but the reaction has been negative. The climax will occur in the next two days. Texas Instruments is down overnight and it could weigh on the tech sector. At a forward P/E of 15.5, there is room for stocks to run.
The trade war with China is heating up. In a Bloomberg interview many companies have already shifted supplies to Vietnam, Bangladesh and Indonesia.
Swing traders should hold the SPY without a stop. Our target is SPY $282. I’m expecting more upside today and we should be able to grind back to the 200-day moving average this week. The magnitude and strength of the bounce will determine our target and I will adjust it as needed. The selling pressure the last few weeks has been extreme and the macro backdrop is fragile.
Day traders should look for an opportunity to buy early this morning. The selling climax yesterday and the sharp reversal early Tuesday will attract bargain hunters. I will be looking to buy right out of the gate today.
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