Daily Commentary: February 09, 2024

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Market Testing Psych Level – Use Care

Posted by Pete Stolcers on February 09

If the market surges higher we could see a buying climax next week. We need to compress or have a small dip to prevent that. Here’s the game plan.

PRE-OPEN MARKET COMMENTS FRIDAY – The SPY traded above $500 before the open. That is a psychological resistance level and it will act as a magnet. After a big rally the market is due for a pause. If the market does not pause here, I feel that anything above $SPY $507 gets us into buying climax territory on a short-term basis if it comes quickly. That could spark a swift round of profit taking.  

I am bullish, I just feel that I can capture the rest of the remaining upside day trading. I don’t feel we have much farther to run before the market compresses or dips. Not loading up on swing trades provides me with flexibility and clarity. When I see the compression or the dip, I will know how aggressive buyers are and then I will form a game plan.

Gaps up from this point will be risky. The market has run far and the odds of a gap reversal are high at this level after a big move. Make triple sure the gap holds before trying longs.

Another clue that the market is close to resistance is the number and quality of shorts that are showing up in Option Stalker Pro searches. The bearish searches have a decent number of candidates and they are making sustained moves during the day. A month ago it was hard to find a good short.

The news next week is fairly light. CPI and PPI have not produced the moves they did a year ago. A week from next Monday we have an exchange holiday so the action could die down towards the end of next week as earnings season winds down.

So here’s what happens on a buying climax like this. Traders are prudent and they are mostly in cash. They are expecting a dip that never comes and they see the next leg higher is continuing without them. Some fools even start shorting. The next leg higher forces shorts to cover and “FOMO Joe” is frothing at the mouth. The market lifts off and everything looks great… for a day. Then out of no where sellers (profit takers) are aggressive. They don’t sell all of their holdings, just some with the intentions of buying at a lower level. That sparks a nasty reversal off of the high and this damage can take a while to run its course.

Have one foot on the gas and one foot on the brake. Stay nimble.

Support is at SPY $498.50 and $497. Resistance is at $500.

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