During overnight trading, the market has broken through the previous high.

PRE-OPEN MARKET COMMENTS TUESDAY – Last week the SPY deflected two “hot” inflation readings (CPI and PPI) and a very weak Retail Sales number (-.9%). The combination reveals the battle ahead. One of the Fed’s primary concerns is inflation and they will keep rates elevated. At a time when consumers are cutting back, we would normally expect a rate cut.

Central banks around the globe have been cutting rates (PBOC, ECB, BOE and RBI). They’ve decided that economic conditions are slipping at a fast pace and that inflation will abate.

I’m seeing signs of domestic economic deceleration. The last jobs report, Q4 GDP, ISM Services, JOLTS and Retail Sales all came in “light” in recent weeks.

Congress has to pass a continuing resolution (CR) in the next few weeks to avoid a government shutdown. Democrats are fuming over DOGE and Republicans should not expect a single vote from the other side of the aisle. Many of the spending cuts will impact Republican districts as well and it will be extremely difficult to keep them unified (they need every vote). This could be a major speedbump for the market. The US has to refinance $9T of debt this year. This is a mind boggling number and it is going to put upward pressure on yields. China has been one of our largest buyers in the last few decades and they have been net sellers the last few years. They need to raise cash for their own needs.

Reciprocal tariffs could be imposed at anytime, stock valuations have not been this high since the Y2K tech bubble and credit card delinquencies are rising.

“The market climbs a wall of worry.” This old market adage is true, but the “wall” is not always the same. In this case I feel like it is “free climbing” a greased wall. There’s no volume so buyers are not very aggressive. I attribute some of this move higher to a lack of attractive investment alternatives. The US has the best global backdrop from an economic view point. In the absence of horrible news, Asset Managers are sticking with stocks. There has been some profit taking and that’s why the market has not advanced. That selling pressure has been light because Asset Managers are not going to shift into bonds when yields are moving higher. We are in “plug your nose and buy” territory. This morning TLT is back below the 50-day MA.

I am not going to join this rally from a swing trading standpoint. We could see a light volume breakout and follow through. If that happens, I will day trade and I will passively catch the last leg of this rally. The higher it goes, the better the eventual shorting opportunity as far as I am concerned. I believe the upside potential is $620. That coincides with a measured move from the July drop and a H+ trendline.

From a day trading standpoint I will be watching for a gap up and a reversal that starts with 3 nice sized M5 red candles into the gap. That would be a gap reversal and if it comes on heavy volume we could have a nice shorting opportunity. This scenario is not very likely. The market rallied on terrible news last week and that tells me that sellers are not very aggressive. If the market gets through the first 45 minutes of trading with the gap holding, it will float higher. I have been finding great trades on both sides. If the first move of the day is wimpy (mixed overlapping candles on light volume), patiently wait for it to lose it’s momentum. Line up your trades and fade that first move. This is a great way to make some money while we wait for decent volume and a strong trend.

Support is at the high from Friday and resistance is at $620.