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Profit Taking Will Test the 200-Day MA This Week

Posted by Pete Stolcers on March 11

Posted 9:30 AM ET – Last Monday the market challenged a major resistance level at SPY $281 and it was immediately repelled. We saw heavy selling last week and the S&P 500 was down 2.2%. It bounced off of the 200-day moving average Friday and traders will be watching that level ahead of quadruple witching.

A US/China trade deal will take longer than expected and the summit might be postponed until April. China’s trade numbers were terrible and tomorrow we will get industrial production and retail sales.

Germany lowered its growth forecast for 2019 from 1% to .8%. That follows an earlier decline from 1.6%. Conditions are very soft in Europe. Brexit looms and the UK is trying to get the EU to wave border checks in Ireland. So far, the EU has not been accomodative. Central banks are preparing for a hard exit in less than three weeks.

Domestic economic growth has been mixed. ISM manufacturing was a little light, but ISM services was strong. ADP was solid (183K), but Friday’s jobs report was miserable (20K). This morning retail sales increased .2% (-.1% expected) and that was a nice rebound from the1.6% drop a month ago.

Swing traders are short the SPY and we will use $280 as our stop on a closing basis. We want to see follow-through selling this week and a close below $274. Good news is priced into the market and any surprise favors the downside.

Day traders should use $275 as a guide. If we are above it, favor the long side. If we are below it favor the short side. If the market is inside of the first hour range, keep your size small. If the market breaks out of that range favor that side.

The decline last week came on relatively good news and that suggests profit-taking. Quadruple witching should add some volatility this week and Tuesday or Wednesday should be very active as positions are “rolled”.
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