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Market Will Challenge Resistance Today - Price Action Will Be Bullish In July

Posted by Pete Stolcers on July 6

Posted 9:30 AM ET – Last week the economic data was better than expected and the market is continuing to rally after testing the 200-day moving average. The Unemployment Report and ADP both showed better-than-expected results and ISM Manufacturing rallied to 52.5. The market bid it is typically strong into earnings season and the market is poised to move higher for the next few weeks.

During the month of June, 4 .8 million jobs were created and that was much better than the 3.5 million that was expected. ISM manufacturing is in expansion territory (52.5) and ISM services will be released 30 minutes after the open today. The economic releases will be fairly light the remainder of the week.

The Shanghai composite rallied 5.7% overnight on heavy volume and that is setting a positive backdrop for global markets.

Earnings season will kick off next week and will have a chance to gauge the bottom line devastation during the shutdown. Most CEOs have said that Q2 will be much worse than Q1. If the economic recovery is making steady progress, investors will look past this quarter. If the economic recovery is sluggish due to the spread of the Coronavirus, we will see profit-taking towards the back end of earnings season.

Swing traders should remain cautious. We have been selling out of the money bullish put spreads to generate income, but our overall level of risk is very low. Last week we entered a bullish put spread and we have two naked put positions on. We will continue to look for new trades, but we are not going to chase. The SPY will challenge resistance at $316. I consider this a low probability trading environment and I believe that the market rally might be able to reach resistance at $324 in the next month.

Day traders need to be careful. Opening gaps higher to resistance have produced reversals. This threat will run its course in the first 45 minutes. If the low of the day is still intact after the first hour, the market is likely to grind higher. If the low of the day fails we are likely to fill in some of the gap.

Good economic releases last week and a rally in Asia will set a positive tone today. Buyers will be engaged ahead of earnings season and I’m expecting bullish price action the next two weeks.

Support is at $312 and resistance is at $315.70. We should get through the resistance level this morning and I would use that as your guide today.
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