The market was not able to recover from the Fed drop in Dec. This is a sign of profit taking.

PRE-OPEN MARKET COMMENTS WEDNESDAY – Year-end rallies are the norm and when they fail to produce, it’s a warning sign. The drop from the last FOMC has not recovered and the market has been spending more and more time below the 50-day MA. In the last 18 months, dips to that level have been gobbled up and the market has jumped off of those levels. Right now we are lingering at that level. It’s a sign that buyers are not that interested and that sellers are absorbing any buying. That indicates a shift and I believe we are going to see the market test lower levels.

This week the market had good news. Foxconn reported good revenues and that sparked buying in semis. Those stocks have been leading the charge and the market gapped above the 50-day MA. That was the first real move of the year and it was smacked down with a long red candle yesterday. That is NOT consistent with buyers being excited. In fact, it confirms selling pressure. ISM Services was a touch better than expected yesterday and that did not deter sellers. This morning ADP reported 122K new jobs in the private sector. That was about 15K light. Initial claims came in at 201K. That is artificially light because the offices are closed during the holiday and people usually wait until after the holiday to file claims. The FOMC minutes will be released this afternoon. I am not expecting any fireworks because Fed officials have been very vocal in recent weeks. Tomorrow the market will be closed and Friday we get the Jobs Report.

The weak price action for SPY tells me that we are likely to test the 100-day MA very soon. We are within striking distance of it now. If the market doesn’t jump off of that level, we are likely to probe lower. Bull markets die hard and this will be a bumpy ride lower. This short is not something we want to get aggressive with. If the drop is substantial, we need to watch the bounce off of it. If it struggles to get back above the 100-day and if it can’t challenge the 50-day, that next short will be of much higher quality.

Bonds have been getting trashed and yields are moving higher. TLT has been in a steady decline since breaking support levels.

I am preferring to short stalled bounces vs buying dips right now, but both strategies will work for day trading. Buyers and sellers are battling it out. The overnight price movement in /ES was brisk and I believe we will get some nice price movement early today. It is unusual to have back-to-back big moves. The most likely outcome today is some good moves in a wide trading range in the first half of the day. That means you have to “hit and run”. After that, the action will slow down. Traders will wait for the Fed Minutes and more importantly, they will wait for the Jobs Report Friday.

It’s all about context. You gather all of this information and you paint a picture for yourself before the open. When your vision proves to be correct you know the patterns you are watching for and you are ready to strike. Let’s see if I was right during the Live Event today.

Support is at the low from yesterday and the 100-day MA. Resistance is at AVWAPQ and the 50-day MA.