Daily Commentary: April 24, 2023

Jeremy Engelbrecht1Option Commentary

The Market Action Will Heat Up

Posted by Peter Stolcers on April 24

Slow day on tap today, but major earnings releases will provide opportunities the rest of the week.

PRE-OPEN MARKET COMMENTS MONDAY – There is not a lot of incremental overnight news. The S&P 500 will open inside of the prior day’s range and it is flat. Overseas markets were also flat and there is no tailwind this morning. The market is bumping up against major horizontal resistance. This light volume bounce is 10% off of the low from March. It will need a catalyst to push it through on heavy volume. Earnings season could be that driver, but I doubt it. I still believe the market needs to spend time in the range and earnings need to catch up to valuations. Asset Managers are not aggressively buying and that is why the volume is so light.

Since the bank failures, the Fed has injected $1T of liquidity into the system. That reduces credit risk. When there is lower risk, shorts start to cover positions. The immediate threat has passed and the Fed is removing that liquidity. A week from Wednesday the FOMC statement will be released.

Earnings season will peak this week. GOOG and MSFT will report after the close Tuesday. AMZN and META will report after the close Wednesday. AAPL does not report until May 4th and that is the day after the FOMC. At a forward P/E of 28, the QQQ is pricing in great earnings. Tech giants have been cutting payrolls and I suspect the guidance will be cautious. Once they report, the market bid will soften.

The economic calendar is light this week. GDP (Advanced) for Q1 will be released Thursday. This will be our first look at activity and analysts are expecting growth of 2.3%. The PCE deflator will be posted Friday and it is used by the Fed to gauge inflation. The Beige Book was released last week and it showed a general slowdown across the country. ISM manufacturing/services, ADP and the jobs report will be released next week.

The low volume tells me that this bounce is vulnerable. We are seeing signs of resistance, but we do not short until we have a technical breakdown.

Day traders should expect action similar to what we have seen in recent weeks. It is critically important to read the price action and to wait for your windows of opportunity. There were not many earnings releases before the open so we won’t be able to lean on those today. We have a low volume “inside day” on tap and very little action overseas. The market action Friday was miserable. On a Monday ahead of major earnings announcements, I am expecting dull trading. The ATR for SPY has not been this low in 18 months. Our best scenario is a wimpy move with light volume mixed overlapping candles that runs out of steam. The likelihood of staying in the range is high so look to trade the first reversal off of that move. Your goal is to find a couple of stocks on each side that are moving on volume. Hanker down and focus on those. Keep your trade size and count to a minimum. The good news is that the rest of the week should be decent with lots of post earnings plays.

Support is at $410 and resistance is at $415.

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