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Market Will Test Major Support In the Next 2 Weeks

Posted by Pete Stolcers on May 23

Posted 9:30 AM ET – The market has a “catalyst” and all of the news was negative. Stocks are down overnight and support at SPY $285 will be tested this morning.

US/China trade negotiations will continue until the situation with Huawei is resolved. China has signaled this through multiple sources. Relations have soured and the chances of a trade agreement before the G20 meeting (June 28th) look slim. Analysts are hoping that the rhetoric stays cordial until that meeting.

Flash PMI’s out of Europe were weak. Eurozone manufacturing came in at 47.7 and services came in at 52.5. Germany was particularly weak. Japan’s manufacturing flash PMI fell to 49.6 (contraction territory). A global economic contraction is a greater market threat than a US/China trade war.

Theresa May is preparing to resign and Brexit is back to square one.

Swing traders should remain in cash. The market is likely to test the 200-day moving average in the next two weeks. It is close to the 100-day moving average and we could fall to that level. We need to see consecutive closes below major moving averages before we can consider bearish trades. Until then, we have to respect the strong rally that started in January and we have to assume that a pullback to major support will represent a buying opportunity.

Day traders should watch the first few bars of the open. If the first 3 bars close on (or close to) their high – buy. If the first 3 bars close on their low (or close to it) – sell. If you don’t see this pattern, don’t trade. We need strong momentum and follow through in one direction or the other. If we don’t get it right away, the market will need time to determine a direction and it is likely that the first hour range will hold. Trading volume will decline into a major holiday and that means the action will start off choppy and eventually the range will contract. SPY $285 is a key support level.

SPY $280 is the next support level.
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