If the market can’t recover half of Friday’s losses in the next day or two, it will breach the 50-day MA and test the 100-day MA.

PRE-OPEN MARKET COMMENTS MONDAY – The market has been in a trading range for the last few months and that is often how it transitions from a bullish cycle to a bearish cycle. The economic backdrop is deteriorating and the market has been able to shoulder a number of recent body blows. Bull markets die hard.

Relative to the rest of the world, the US is holding up well. I believe that’s due to the massive money printing during Covid-19. That stimulus is winding down. Inflation is rising and consumers are starting to cut back. We’ve seen this in the economic releases and companies have mentioned this in their guidance.

On a global basis, central banks in developed nations have been cutting rates even when inflation remains high. Their economic conditions have been slipping for months and they view a recession as a greater threat.

I believe the first major “crack in the dam” will come on a weak economic report. The Fed is still worried about inflation and the next projected rate cut is in June. Asset Managers won’t like that hawkish stance and they will reduce risk (sell) after a weak report. Cash levels have not been this low since 2010 and Asset Managers are “all in”. That is typically when we are at greatest risk for a market decline. It is a sign that there is not much more upside firepower.

The big news of the week will come from Nvdia. I believe their earnings will be good and that fear of cheaper AI models (Deepseek) will subside. The stock trades at a high forward P/E so I am not expecting a massive rally or drop.

I am not entering longer-term swing trades. I will take overnight bearish trades, but I am trying to keep my trade duration less than a couple of days. I am looking for a very specific pattern this week. We had a heavy round of selling Friday. I want to see if that was legitimate. How will I know? If the bounce the next few days is wimpy and if the market can’t recover more than half of Friday’s losses, it will be a sign that sellers are keeping the pressure on. That will give me confidence to trade from the short side and to take some bearish overnights. When the SPY breaches the low from Friday it will take out the 50-day MA and possibly AVWAPQ. Depending on the news, the market could also take out the 100-day MA. We are not that far from it.

I believe that ISM Services could be a problem next week. Last month it dropped to 52.8 (much greater than expected). Last week the Flash Services PMI dropped below 50 for the first time in two years. We need that economic knockout punch for the market to roll over. The jobs numbers have remained steady, but I don’t trust them.

From a day trading standpoint the market is going to open higher. If we see a wimpy move higher I will watch for resistance and I would fade that first move. If the first move is a wimpy drift lower and some of the gap is filled I will watch for support and I will fade that move. After a massive move Friday, this will be an oversold bounce and it will be an inside day. This will be a day of rest.

The best thing you can do on any market bounce is to confirm relative weakness for shorts you are keeping your eye on. Near and all-time high are we likely to see a magnificent rebound and a new all-time high on heavy volume? No. We are near resistance and we’ve seen signs of selling pressure. Even if the market stays in the trading range for the next six months, at this juncture our best scenario and our best odds are on the short side. That’s why we are focusing our attention on shorts. The candidates in our bearish searches are increasing and that is a tell that conditions are starting to deteriorate.

Support and resistance are the low and high from Friday respectively.