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Market Will Not Have A Meaningful Bounce Until This Happens

Posted by Pete Stolcers on August 26

Posted 9:30 AM ET – Dovish Fed remarks in Jackson Hole sparked little buying Friday before the bottom fell out. China plans to impose tariffs on US goods and Trump said that he would respond later in the day. The market expected the worst and the S&P 500 fell 30 points in 5 minutes. Stocks sold off the rest of the day and Trump’s initial response was very negative. He has since softened the tone and we are seeing a small bounce morning. Buyers will not be tempted until we test support at SPY $280 – the 200-day moving average.

Trump tweeted last night (2:30 AM ET) that he might not impose new tariffs and that China wants to meet.

China’s currency fell to an 11-year low overnight. Protests in Hong Kong are escalating and economic growth is slipping.

Trump said that he hopes tariffs against German autos can be avoided. He also said that the US will forge a big Brexit trade deal with England once they leave the EU. A trade deal with Japan might be signed in September.

The economic news this week is very light (durable goods, consumer sentiment and GDP). After Labor Day major releases will be compressed into a holiday-shortened week so the action should be brisk.

Swing traders should remain in cash. Light volume and inflammatory trade remarks are wreaking havoc. I don’t believe we will see a strong bid until the 200-day moving average is tested. We need to see a deep drop and a big reversal off of that low. If the market drifts down to that support level and we spent time there it will be a bearish sign. Buyers will wait for that capitulation low.

Day traders should watch from the sidelines during the first 30 minutes. I believe that the bid will be tested. There are many storm clouds on the horizon and Asset Managers are in “risk off” mode. If the market quickly drops to $282 and it bounces with 2 consecutive long green bars I will play the long side. If the market drifts down to $282 and it is easily breached I will trade from the short side on the notion that we are going to test $280. Trading conditions are very fluid. Support is at SPY $280 and $282. Resistance is at SPY $290.

Look for a very choppy week.
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