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Watch This Key Level - Buy If the Market Is Above It

Posted by Pete Stolcers on September 11

Posted 9:30 AM ET – Yesterday the market tested the breakout at SPY $297 and it held. A rally in the last few minutes pared most of the losses and the open looks positive. China will postpone tariffs on 16 US goods and dovish expectations from the ECB tomorrow are positive influences this morning.

The news cycle is fairly light this week and the market is likely to trade in a range between SPY $294 and $300.

China and the US will calm investor concerns with proposed face-to-face negotiations. Both sides know that an agreement will not be reached before the 2020 election and they will play this game for another year.

Trump needs to take some of the pressure off by signing a trade deal with Japan. Rumor has it they are close. Unfortunately, the USMCA will require congressional approval and Democrats will shoot it down.

Global interest rates are at historic lows and the ECB is expected to ease tomorrow. With interest rates in negative territory they don’t have many alternatives. The FOMC statement will be released a week from today and a quarter-point rate cut is “baked in”. The focus will be on future rate cuts this year.

Global economic conditions are soft, but domestic activity remains strong. ISM services came in at a robust 56.4 last week and ADP showed that 195,000 new jobs were created in the private sector during the month of August.

Stock valuations are at the upper end of the range (forward P/E of 17).

Buyers will support the market at the 200-day moving average as long as credit concerns remain minimal. They know that bond yields don’t keep pace with inflation and that fixed income investments produce negative real returns (they have to be long equities). Sellers will take profits at the all-time high knowing that an inverted yield curve is signaling a global recession.

Swing traders should remain in cash. We tried to get long last Thursday and we never got a pullback. This rally took place in an hour and here we sit. I believe that the bid will remain strong for the next week and nimble traders and take advantage of individual stocks with relative strength.

Day traders should look for opportunities to get long this morning. Wait for the bid to be tested and use SPY $297 as a guide. As long as that support level holds trade from the long side. If it fails, focus on the short side. A drop below $297 would attract sellers and we would fill in the gap from last week.

This is a light news cycle and I am expecting us to tread water for the next week.
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