Yesterday the market added to the bounce from Monday and the selling we saw Friday was all quadruple witching related. The 50-day MA has attracted buyers each time it has been touched this year and that pattern continues. Without any material news to act as a catalyst, buyers will be aggressive at that support level and profit takers will be aggressive at the all-time high.

Inflation is running “hot” domestically and abroad. Last week the Fed increased its projections by a full percentage point to 3.4%. They still believe that this is a transitory event caused by supply disruptions and they have moved there tightening window forward by a few months (fall of 2023). Those comments from the Fed were better than feared and bonds rallied. The threat of rising prices will keep a lid on the market, but the Fed continues to purchase bonds ($120 billion/month). The financial system is flush with cash and as long as there is no threat of tapering, market dips will be brief.

Economic conditions are improving and we are two weeks away from the next round of major announcements. Flash PMIs were largely in line. Europe was slightly better and Japan was soft (barely in expansion territory).

Earnings season is a month away and the market bid will start to strengthen in a few weeks.

Swing traders should wait patiently for a sustained market drop that lasts a week or longer. I’m not as concerned with the magnitude of the move as I am with the duration. These brief dips are instantly reversed and there’s not much of an opportunity to evaluate relative strength or to place trades. Sector rotation is brisk and stocks that are hot today are cold tomorrow. Option implied volatilities are cheap and that increases the risk for premium sellers. The market will be stuck in a range for at least a few more weeks and this is a low probability trading environment for swing traders that have a 3 to 4 week time horizon. Keep your powder dry. I have been noticing a pattern were the market drops into monthly options expiration and those moves have been problematic for bullish put spreads. If you are selling them you should consider buying them back early.

Day traders are able to take advantage of sector rotation. Look for big volume spikes, technical breakouts and relative strength. The sector “du jour” is easy to spot using Option Stalker searches. Look for stocks that are making nice orderly sustained moves. Trim your trade count/trade size and set passive targets. I’m trying to find three or four excellent stocks each day and then I focus on them. Don’t spread yourself too thin. By focusing on a handful of stocks you can closely monitor the price action and manage the trades. Tech stocks have been particularly strong with bonds rising and yesterday the Nasdaq 100 closed at a new high. Focus on this rotation and buy tech stocks.

Support is at the low from yesterday and resistance is at the all-time high.