Daily Commentary: February 29, 2024

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Don’t Chase This Market Gap Up

Posted by Pete Stolcers on February 29
www.oneoption.com

The news was not that good and we have seen selling pressure this week. The market will continue to compress in a range until next week. I’m still bullish. Be patient.

PRE-OPEN MARKET COMMENTS THURSDAY – We’ve seen light volume, choppy trading this week while the market digests recent gains. The news has been light and we will get major economic releases next week.

The market was down slightly before the PCE was released. An increase of .4% was expected and it came in lighter at .3%. The S&P 500 shot 30 points higher on the news. I’m skeptical of the reaction and I would be watching for the gap up to be tested. The good news is that the market did find support at $505 the last two days. We were likely to see decent price action today since the downside had been tested.

Politicians kicked the can down the road, but not far. We will avoid a government shut down.

Our best case scenario today is a gradual drift lower into the gap with mixed overlapping candles. We want more than half of the gap up preserved. That would be a sign that buyers are interested. During that dip we will be able to see which stocks preserved the early gains and we will have a good entry point.

If we see stacked red candles with little to no overlap, we have to wait patiently. This would be a sign that the selling pressure is heavy and that it will take time to establish support.

I would not chase any move higher. The news was not that good and we have seen some selling pressure this week. If that initial move higher is wimpy, it will just be a matter of time until the downside is tested. That type of move would lure in bullish speculators (“FOMO Joe”).

China’s PMIs will be released tomorrow. They are likely to be weak based on what I’ve read about the Chinese New Year. Unfortunately, we can’t trust the numbers… so they might report nice growth.

The market is compressing here. We are seeing two-sided action. Do not chase. There will be opportunities, you just need to be patient.

Support is at SPY $505 and resistance is at $510.

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