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Day Trade From the Long Side - Wait For Support

Posted by Pete Stolcers on June 21

Posted 9:30 AM ET – Yesterday the market shot higher after a dovish FOMC statement Wednesday. The bid was checked early Thursday and stocks retraced filling the gap. Once support was established the rally resumed and we almost closed near the high the day. Quadruple witching helped to fuel the move. This morning stocks are giving back some of the gains.

From a fundamental standpoint everything that I’ve been outlining is valid. Major global economies are decelerating and in almost every case manufacturing PMI’s are in contraction territory. Central banks are as dovish as they can be, but with interest rates near 0% they are out of monetary bullets. The trade war between the two largest economies in the world is heating up. Next week Xi will tell Trump that he can relax some of his trade demands and China will quell the tension in North Korea and Iran. Alternatively, Trump can launch a full-blown trade war with China and deal with daily missile launches in North Korea and Iran. Xi does not have to worry about reelection, but Trump does.

The market is pricing in three Fed rate cuts this year. With the market and a new all-time high that is overly optimistic.

At the end of the day all of my fundamental analysis means nothing. The bottom line is that interest rates are at historic lows and investors are piling into the stock market because bond yields don’t keep pace with inflation. Stock valuations are at the upper end of their range and investors don’t care. Many fundamental analysts called for a market correction in 1999 and they were eventually right. Unfortunately, NASDAQ stocks shot 50% higher from that level and anyone who shorted the market fundamentally was carried out in a body bag.

I feel that a daily market comments need to be more technically based. I am a day trader and all of my decisions are driven by technical analysis. Consequently, I will greatly decrease my fundamental commentary (I still do it for my own use) and I will include two daily charts (one for swing traders and one for day traders).

Swing traders are on the sidelines. The breakout yesterday will be tested this morning and we will open below it if the market can closes above the all-time high (1) – buy. Use SPY $295 as your stop on a closing basis. On the chart you will notice the wedge formation and the breakout. That was an excellent entry point for longs and that is the type of move we will catch in the future,. If the market reaches #2, take a small short position with a stop at #1. If the market reaches #3 add to the short position and use #2 as your stop.

Day traders need to be cautious on the open. The market is at a new all-time high, but we saw signs of resistance yesterday. The opening gap higher was faded immediately. This morning we are below support at $294.50. I believe that the next support level at $293.50 will be tested. If the selling pressure lasts more than an hour the breakout from yesterday would fail and I would view that as bearish. The next support level is $291.50 and I don’t believe we will get anywhere near it today. Quadruple witching will add some volatility. I believe that the bid will be tested early. I will be looking for a buying opportunity once support is established. Ideally, there will be a washout (long red five-minute candle) followed by a hammer. That is where I will look to buy.

I might consider doing a morning video in lieu of written content. Please send your feedback to
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