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This News Will Help the SPY Fill the Gap Today - Only A Bounce

Posted by Pete Stolcers on May 30

Posted 9:30 AM ET – Yesterday the market tested the 100-day and the 200-day moving averages. Stocks are bouncing this morning and we could fill in the gap from the open yesterday. The market typically bounces off of major support levels on the first breakdown attempt. Investors are cautious. This is only a bounce and the momentum points lower.

Trade negotiations with China have stalled and the tone has soured. Buyers are hoping that the G20 meeting in one month will keep things civil and that leaders will be able to find middle ground.

China posted a better than expected manufacturing PMI of 51.9 (51.3 expected). The services PMI was 54.9 and it was inline. Tomorrow the broad based Caixin PMI will be released and it includes small and medium sized businesses.

Domestic GDP came in at 3.1% this morning as expected. That is a very strong number, but it is backwards looking. As long as growth in the US is robust, investors seem willing to hold stocks at current levels. Next week ISM manufacturing, ISM services, ADP and the Unemployment Report will be released. Job growth has been strong, but ISM manufacturing and ISM services were little soft last month. We need good numbers for the market to hold the $277 support level.

Swing traders shorted a half position of SPY at $279 on the open yesterday. We will use SPY $282.50 as a stop on a closing basis. If I see signs of economic weakness we will add to the position. The releases during the next week will determine market direction.

Day traders should favor the long side this morning. The bid will be checked early and that dip should be a buying opportunity. The first test of major support usually holds and we have a gap to fill. SPY $280 was a support and now it is a resistance level.

Day traders can focus on the bounce today and swing traders should keep their eye on the longer-term downtrend.
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