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Earnings Ramp Up Next Week
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The economic releases are light and earnings will set the tone.
PRE-OPEN MARKET COMMENTS FRIDAY – We’ve seen a little profit taking this week and that was expected after a big run the last month. The volume on the way up has been light and the candle bodies have been small. These signs told us that the gains could easily be stripped away. Buyers and sellers are paired off and we should expect intraday volatility. Keep swing trades to a minimum and focus on day trading.
After two days of selling, this is likely to be a day of rest.
Our best set up today would be an instant probe for support. We want to see a nice tall bounce off of AVWAPQ and the 20-day MA. If we get that pattern, buyers will feel more confident and the market will recover some of its losses. I would expect a gradual grind higher with lots of retracement. Every move higher will be challenged and that is what causes the grind higher with mixed candles. This would be a good back drop for day trading longs. Look for the strongest stocks that barely dipped yesterday and that have strong D1 charts.
A less desirable scenario is a market bounce on the open. We know that sellers have been active in the last two days so joining this bounce poses a greater risk. At some point, those sellers will test the bid. During the initial stages of a pullback, we see a gap up (or early rally) and then selling that drives the market down. The market opens on the high and it closes on the low. That is what forms the long red candle (reference the pullback in early April and the early bounce yesterday). If we get an early rally, we need to see high quality stacked green candles and good volume. That would be a sign that buyers are interested. We do NOT buy that bounce. We wait for the first pullback. It needs to be brief and shallow, then we can buy. If the early move higher has mixed overlapping candles and light volume, we start watching for a possible reversal.
The market is going to open flat this morning. Overseas markets were down .5% on average and that could have been in sympathy with our decline yesterday. I’m not going to read too much into that, but there is a slight headwind.
Watch VXX today. If it backs off, the market is not likely to have a big drop today. If it starts to grind higher when the market is flat to higher, that is a warning sign that the selling pressure is still heavy.
The third scenario is a dull trading day where the market chops around. Traders could just wait for earnings next week.
Support is at AVWAPQ and the 20-day MA. Resistance is at the low from Wednesday.
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