Yesterday we saw more signs of selling pressure.

PRE-OPEN MARKET COMMENTS THURSDAY – After a few days of heavy selling and a 4% drop from the high, the market will bounce. Buyers have been conditioned to buy dips and the market is still in a long-term up trend. The height and duration of that bounce will tell us how aggressive (or passive) buyers are. I don’t mind rallying above the 50-day MA, but I would prefer not to stay above that level for a few days.

Yesterday buyers tried to rally the market above the 50-day MA. A few months ago, that early rebound would have gained traction, but not this time. The move was smacked down and the selling pressure was heavy enough to push the market back blow the 100-day MA. It did close above the 100-day MA, but not convincingly. This is a sign that sellers are nearby.

Now that the market has bounced twice from the 100-day MA, buyers should feel a little more comfortable that this support is going to hold. When these support levels are tested and confirmed, we want the market to jump off of this support like it was jabbed in the butt with a cattle prod. If we don’t see that price action, buyers are not that interested. The longer we flounder around below these major moving averages the more bearish it is.

This morning initial jobless claims jumped to 242K. That is the highest reading we’ve seen in months and it was just a matter of time until the economic weakness started to show up in the jobs numbers. Last week’s flash PMI in the US showed a big drop in the service sector. I believe that ISM Services (Wed) is going to be a weak number. We could also see a weak ADP, JOLTS and Unemployment Report. The issue is that inflation has been rising and the Fed is relatively hawkish. If the market senses that economic conditions are slipping and that the Fed is not going to cut rates, Asset Managers will reduce risk (sell). They are “all in” and cash levels have not been this low since 2010. That means that the first wave of selling could be substantial (there’s no one who has cash to buy and they are all reducing risk).

So what do we do today? We expect that buyers are going to come in now that support has been confirmed at the 100-day MA. If they can’t drive the market back above the 50-day MA on strong volume… it is a bearish warning sign. If the market can’t close above the 50-day MA this week, it is a warning sign. If the market can’t stay above the 50-day MA Monday and Tuesday, we start taking starter short positions ahead of the economic releases.

For today, the first move is higher. I would like to see a wimpy light volume bounce. I will fade that and I am more comfortable trading from the short side. Only stacked green candles on an early rally that come on heavy volume will get me to think otherwise. If the first move is wimpy, your best trade will come on the fade.

Support is the 100-day MA and resistance is the 50-day MA.