I will be live on Benzinga radio this Wednesday April 8th at 9:00 am.
Last week here I wrote both about the potential for a rally at the start of the week with ‘window dressing’ and potential for quarter pinning. We got that rally. Then I gave a specific level to watch for to determine if the rally could continue, but with a bias that it would likely fail and we would see some downside. That level came at 207 and sure enough not being able to hold it gave us my first target at 205 that did indeed hold.
As I’m sure you are aware, Non Farm Payrolls came out on Friday and the futures (ES_F) which were open for 15 minutes, sold off the entire session closing around 2040. The assumption going into Monday is that we are going to gap down pretty hard. Although I agree it definitely looks that way, I also want to be mindful that there is no guarantee given that there was only 45 minutes of thin trading, which can only be described as reactionary. In fact, if you could apply logic to market participants (which I definitely would not) then bad job numbers (and minimal wage inflation) equals lower rates for longer. I’m even starting to hear people talk about the next QE. Point being, I think it’s better to be prepared for multiple scenarios as opposed to just one based on 15 min of holiday trading.
Oversold/Overbought: I don’t find much useful information from the below breadth readings except to determine turning points and we are not there. I am only going to post two charts, but I assure you that on multiple breadth indicators we are not oversold or overbought; hence we are still in no-man’s land.
SPX stocks above their 20-day moving average: 
SPX stocks at 20-day lows: 
Aligning technicals and the SPY open interest for next week: The best way to navigate next week as a short term trader is to be aware of levels that matter and measure price reaction to those levels. Below is the chart of SPY and the open interest graph for next week with an explanation of what to look for.
Last week 207 was the level I said needed to hold in order to refrain from a further sell off. Next week opening below 207, but above 204 will put SPY right in the middle of all the high open interest puts. If it can muster its way back above 207 or even 206 then it’s possible the downside will be limited next week. However, not being able to get above at least 206 and the risk/reward favors a move lower then even the 204 level. Same would obviously be true on a gap down below 204. As you can see from the technical chart there is a gap at 202. Below there and we may have 200-day simple MA at 201.40, minor psychological support at 200, and then there is the old double bottom of 197.86.
As you can tell their is a confluence of support areas all around 200 to 202, which may make trying to short beneath 202 challenging. On the other hand, if we drop straight through all of those then that is important information about the strength of the selling. It may be part of panic/capitulation type selling and closer to an end than a beginning. As the title of this post suggests, the market is in need of a washout and if we got one in the next week or two it would align well with earnings season.
I haven’t written much about the upside potential as I see it as less likely, but would remiss not to at least mention that above 207 and it has room to run before open interest call resistance at 210. 
Bottom Line: We continue to be in a murky trading environment. Short term traders should either be very mindful of important levels and quick to take profits/stop-out or just remain patient until a better trading environment presents itself. For those looking for strength in the market, the small caps, IWM, as well as the housing and retail sectors appear to be holding up well so far.
Regarding Interest Rates: I do not deem myself an expert on rates and this is purely anecdotal, but just for fun thought I would put it out there. This is the first time I can remember in three plus years that all I am seeing is people now believing the Fed won’t rase rates anytime soon (and as I said I’m hearing more QE talks). Now while I am not arguing that the Fed won’t wait as recent evidence would suggest they will, I have always thought that 10-year yields would only start to rise when everyone started to believe the Fed would continue to prolong a zero interest rate policy. Remember the market can price in a rate rise way before the Fed actually acts. I am curious to see how this plays out with what seems to be the majority finally believing in a prolonged low rate environment.
I will be attending the Benzinga Fintech Awards this Wednesday and for anyone interest in joining, here is a link where you can purchase tickets.
Good Luck next week. If you are looking for specific option or stock trade ideas (short and long term), daily market commentary, and open interest analysis on momentum stocks consider a subscription.
Market in Need of A Washout
I will be live on Benzinga radio this Wednesday April 8th at 9:00 am.
Last week here I wrote both about the potential for a rally at the start of the week with ‘window dressing’ and potential for quarter pinning. We got that rally. Then I gave a specific level to watch for to determine if the rally could continue, but with a bias that it would likely fail and we would see some downside. That level came at 207 and sure enough not being able to hold it gave us my first target at 205 that did indeed hold.
As I’m sure you are aware, Non Farm Payrolls came out on Friday and the futures (ES_F) which were open for 15 minutes, sold off the entire session closing around 2040. The assumption going into Monday is that we are going to gap down pretty hard. Although I agree it definitely looks that way, I also want to be mindful that there is no guarantee given that there was only 45 minutes of thin trading, which can only be described as reactionary. In fact, if you could apply logic to market participants (which I definitely would not) then bad job numbers (and minimal wage inflation) equals lower rates for longer. I’m even starting to hear people talk about the next QE. Point being, I think it’s better to be prepared for multiple scenarios as opposed to just one based on 15 min of holiday trading.
Oversold/Overbought: I don’t find much useful information from the below breadth readings except to determine turning points and we are not there. I am only going to post two charts, but I assure you that on multiple breadth indicators we are not oversold or overbought; hence we are still in no-man’s land.
SPX stocks above their 20-day moving average:
SPX stocks at 20-day lows:
Aligning technicals and the SPY open interest for next week: The best way to navigate next week as a short term trader is to be aware of levels that matter and measure price reaction to those levels. Below is the chart of SPY and the open interest graph for next week with an explanation of what to look for.
Last week 207 was the level I said needed to hold in order to refrain from a further sell off. Next week opening below 207, but above 204 will put SPY right in the middle of all the high open interest puts. If it can muster its way back above 207 or even 206 then it’s possible the downside will be limited next week. However, not being able to get above at least 206 and the risk/reward favors a move lower then even the 204 level. Same would obviously be true on a gap down below 204. As you can see from the technical chart there is a gap at 202. Below there and we may have 200-day simple MA at 201.40, minor psychological support at 200, and then there is the old double bottom of 197.86.
As you can tell their is a confluence of support areas all around 200 to 202, which may make trying to short beneath 202 challenging. On the other hand, if we drop straight through all of those then that is important information about the strength of the selling. It may be part of panic/capitulation type selling and closer to an end than a beginning. As the title of this post suggests, the market is in need of a washout and if we got one in the next week or two it would align well with earnings season.
I haven’t written much about the upside potential as I see it as less likely, but would remiss not to at least mention that above 207 and it has room to run before open interest call resistance at 210.
Bottom Line: We continue to be in a murky trading environment. Short term traders should either be very mindful of important levels and quick to take profits/stop-out or just remain patient until a better trading environment presents itself. For those looking for strength in the market, the small caps, IWM, as well as the housing and retail sectors appear to be holding up well so far.
Regarding Interest Rates: I do not deem myself an expert on rates and this is purely anecdotal, but just for fun thought I would put it out there. This is the first time I can remember in three plus years that all I am seeing is people now believing the Fed won’t rase rates anytime soon (and as I said I’m hearing more QE talks). Now while I am not arguing that the Fed won’t wait as recent evidence would suggest they will, I have always thought that 10-year yields would only start to rise when everyone started to believe the Fed would continue to prolong a zero interest rate policy. Remember the market can price in a rate rise way before the Fed actually acts. I am curious to see how this plays out with what seems to be the majority finally believing in a prolonged low rate environment.
I will be attending the Benzinga Fintech Awards this Wednesday and for anyone interest in joining, here is a link where you can purchase tickets.
Good Luck next week. If you are looking for specific option or stock trade ideas (short and long term), daily market commentary, and open interest analysis on momentum stocks consider a subscription.
Share this: