The market has bounced to a level where we should start seeing signs of resistance.

PRE-OPEN MARKET COMMENTS MONDAY – The market dropped 20% from its high and it bounced off of that low the last two weeks. The drop was not a mistake and there are macro issues. During a market transition, the first bounce is typically tall. That first drop sparks a lot of adjustment and it is deep and swift. Conditions don’t typically deteriorate that quickly and the move is over-exaggerated. Buyers step in and they have not been discouraged. This is where we are currently.

It doesn’t matter if there are tariffs or rising interest rates or signs of an economic slowdown. This is a very typical pattern. The first bounce needs to run its course. How high the market bounces and how quickly it is able to recover tells us how aggressive buyers and sellers are.

Right now the focus is on tariffs. At minimum they will go up 10% across the board. That is substantial and we should not overlook that. The notion of 25% tariffs spooked everyone and now 10% does not seem that bad. This is how Trump operates. He gets everyone thinking about the extreme. It’s like a shiatsu massage where you experience pain from pressure points and relief when the pressure is removed. There could be trade deals in the next couple of weeks, but the reality is that they will be 10% plus some retaliatory component. This is going to lead to supply disruptions. The higher cost to consumers is going to be more than offset by tax reductions. That is Trump’s plan and he has been very vocal about it.

The bigger issue from my perspective is global growth. It has been declining and that trend is steady. This week the consensus estimate for Q1 GDP is .4% growth. That is a substantial drop.

The jobs report this week (establishment survey) should be decent. Initial jobless claims have been good. The average hourly work week is a number to watch. It has been declining and before employers lay people off they reduce their hours. The household survey is a component of the report and it is not mentioned very often. It paints a much different picture than the establishment survey we all watch. I don’t want to get into the weeds on this, but the way people feel about the economy is much different from the business surveys and people spend according to how they feel.

I feel that trade deals and good economic reports could buoy the market this week. Earnings should be decent since the tariffs have not had an impact yet. Companies were well aware of the tariffs and they imported as much inventory as they could to front run them. It will take time to work this inventory off and production will decline. Current activity is “front loaded” and I feel the decline is coming.

I am not currently swing trading, I want to keep my focus. I believe that my next swing trade won’t come for a couple of weeks and it will be a short. I want to watch the last leg of this bounce. If I see a strained rally that stalls around the 50-day MA, I will be “licking my chops”. That move will collapse option IVs and I will be able to buy longer-term puts (3+ months out).

If the market races to the 200-day MA in the next two weeks, I won’t be as bearish, but I will still need more confirmation before turning my bias to neutral.

From a day trading perspective, I believe that there will be some decent day trading longs. This week is packed with earnings releases and I will be looking for post-release trades.

Support is at SPY $550. That is a significant resistance level and we are through it. Resistance is at the 50-day MA.