The market rebounded nicely after a 10% drop and it is within striking distance of the all-time high.

PRE-OPEN MARKET COMMENTS MONDAY – The market sold off at the end of July after a heavy dose of news from the Fed, earnings releases and economic reports. The depth and speed of the drop are a sign of profit taking and I expect to see resistance at this level. Bull markets die hard. The trend since November has been strong and the bounce has been tall. Buyers have been conditioned to buy dips and they will not be easily discouraged.

Last week the inflation numbers suggested that the Fed has room to cut rates. After the soft jobs report two weeks ago the market is expecting a quarter point rate cut in September. The Fed Chairman said that was possible in the last FOMC press conference. Wednesday the FOMC Minutes will be released and Friday (10 AM ET) he will speak at the Jackson Hole economic symposium. The market will be focused on his statements Friday.

The earnings calendar is light this week, but NVDA will report next week and that will be very important for chip makers.

From a technical perspective the market easily fell through major technical support levels and that is bearish. If it struggled to get back above the 50-day MA with mixed overlapping candles it would have indicated that there is profit taking. That didn’t happen, the market easily recaptured those support levels last week indicating that buyers are still interested. I was hoping for a more stubborn bounce that struggled to get back to the 50-day MA. That would have set up a good entry point for shorts. I am still favoring the short side on a swing basis, but less so than I was before I left for vacation a week ago.

What would get me more bearish again? A close this Friday below the 50-day MA. The selling pressure from two weeks ago needs to resurface immediately. Asset Managers that needed to unload risk were not able to do that to any large degree. The move lower was too fast and too deep with lots of gaps. At this level they will be selling and that will keep a lid on the rally from this point forward. I will be watching for a compression at this level and for a bearish day or two.

If the market stays above the 50-day MA for more than a week it is a sign that the bid is stronger than I expected. If this scenario plays out I expect to see two-sided price action with good short term opportunities in both directions.

Stock valuations are stretched so there is room on the downside. The notion that a Fed rate cut would be good for the market ignores the fact that they are easing due to an economic slowdown. If employment starts to falter there will be fear that the Fed waited too long. Asset Managers will also rotate out of stocks and into bonds if they feel that interest rates have peaked. The polls are fairly even now and a month ago the market was pricing in a Trump victory. That uncertainty will also cause market volatility. This is also a seasonally weak period for the market.

I am looking for a fairly dull week. The news is light and traders will be waiting for Powell’s speech Friday. I would like to see a couple of down days this week that close near the low of the day with late day selling. That would be a sign that Asset Managers are reducing risk at this level and it would set up a possible breach of the 50-day MA Friday.

Try to find some day trades this week. After the bounce, there are many more longs in the searches. Don’t overstay your welcome. Good shorts are hard to find right now.

Support is at the 50-day MA and resistance is at $555.