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Market Treading Water - Bid Still Strong - Negative Data Will Build

Posted by Pete Stolcers on March 12

Posted 9:40 AM ET – Last Friday the market tested major support at the 200-day moving average. Buyers took advantage of that drop and the reversal spilled over Monday. Yesterday, stocks marched higher in a orderly fashion and we closed on the high of the day. This is bullish price action and we could be stuck in this range while major news events play out..

The steady bid yesterday was very suspicious. I mentioned to members that Brexit news has probably “leaked out”. That was the only potential catalyst and we knew that Theresa May was meeting with Claude Juncker. This morning we learned that the EU has given England legal assurances that goods will be able to flow freely over the Irish border. This does not guarantee that Theresa May’s plan will get the votes it needs in Parliament tomorrow, but it increases her chances. The deadline is only two weeks away and the EU said that it is not going to do anything more.

US/China trade negotiations will take time and the Trump/Xi summit will probably be postponed until April. China’s economic growth is slipping. Industrial production and retail sales will be posted overnight.

Europe’s economic growth is dismal. Germany lowered its GDP forecast for 2019 down to .8%. The ECB is out of monetary weapons and their only recourse is to postpone interest rate hikes indefinitely.

The largest economies in the world are the US, China, Japan, Germany and England respectively. With the exception of the US, growth rates and all of the other countries are decelerating.

Domestic economic growth has been solid, but we are seeing some potential red flags. Last week the jobs report showed that only 20,000 jobs were created. Economists are blaming the government shutdown and bad weather. I trust ADP and they showed that 183,000 jobs were created in the private sector during the month of February so I agree with them.

Swing traders should remain short and we will use a closing stop of $281. It’s very possible that we trade in a tight range between the 200-day moving average and horizontal resistance at $281 for the next few weeks. A trade deal with China is priced in and the market is prepared for an orderly Brexit. These two events could play out favorably, but I believe that the selling pressure will build with every economic release.

Day traders should go with the flow. The upward momentum was very strong yesterday and we are seeing follow-through this morning. Quadruple witching will add volatility during the next two days. Use the first hour range as your guide. Resistance is at $280 and support is at $277. Major resistance is above $281 and the market has been slapped down from that level twice this month.

After a nice rebound from the December lows, the market is holding gains. Buyers are active on dips and sellers are reducing risk at $281. I was afraid that we might compress in this area and that looks more likely now that the 200-day MA held.
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