Daily Commentary: June 04, 2024

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The Market Is Trapped

Posted by Pete Stolcers on June 04

The price action the last few months suggests that we are likely to stay in a range this summer.

PRE-OPEN MARKET COMMENTS TUESDAY – I took some time off during a period that I believed would be slow. My suspicion was correct and the market has not moved much in the last two weeks.

We have seen weaker economic data the last two months and the “bad news is good news” crowd has been supporting the market on the notion that the Fed is closer to easing. The jobs report this week will be important. Initial jobless claims have been steady at 220K the last few weeks so the number should be good. JOLTS job openings will be release 30 minutes after the open today and ADP will be released before the open tomorrow. They will provide us with some insight on employment conditions.

If the numbers are weak and job growth falls below 100K on Friday, we could see some selling pressure. Traders will be concerned that the Fed is not going to ease and that they might have waited too long. That will put pressure on the Fed next week. I am NOT expecting this scenario based on the employment data to this point.

I believe that we will see job growth in the 175-200K range. I am also expecting the Fed to reduce quantitative tightening next week. They trimmed the balance sheet run off from $60 billion per month to $25 billion during the last meeting and they are likely to reduce that further. As for a timeline for a rate cut, I don’t believe that will change. Inflation has been persistent. We are seeing some improvement, but the core rate is still well above the target rate. The tone might soften, but not enough to expect a rate cut this summer.

Stock valuations are still fairly high and if the market spends time in a range, profits will “catch up”. That could set us up for a post-election rally in November.

All of this fundamental “mumbo-jumbo” is fine, but all you have to look at is the price action. We had a big rally from November to March and since then the momentum has stalled. We had a bearish engulfing candle on April 4th off of a relative high and that sparked some selling pressure. We bounced off of the 100-day MA in a meager fashion and we made a marginal new high. The market tried to add to the breakout and we had another bearish engulfing candle off of a new all-time high on May 23. That is a sign of resistance. Conclusion: We are not going anywhere fast and the market will be trapped in a range.

Swing traders can sell bullish put spreads on strong stocks. I would not be aggressive because there is no market tailwind.

Day traders should expect volatility intraday. Buyers and sellers are paired off. This is similar to the price action we saw after the April 4th bearish engulfing candle. During the last two weeks we’ve seen nice big ranges during the day and I expect that to continue. Don’t get locked into one side or the other. When the momentum stalls in one direction, look for a reversal.

Support is at AVWAPQ and resistance is at the all-time high.

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