Watch This News After the Open – It Could Spark More Selling
Posted by Pete Stolcers on June 3
The S&P 500 closed below the 200-day moving average Friday. The selling was heavy and we did not see a late day bounce. Economic releases were soft over the weekend and we are poised to open lower this morning.
Investors have been willing to hold stocks as long as domestic economic growth remains strong. ISM manufacturing will be released after the open and it will be an important number. ISM services and ADP will be released Wednesday. The Unemployment Report will be posted Friday. If activity in the US starts to soften the market will decline.
Official manufacturing PMI’s were weak around the globe and the following countries are in contraction territory: Germany, France, England, Japan, South Korea and Taiwan. China narrowly escaped that distinction with a reading of 50.2. These are the largest economies in the world and without question global conditions are deteriorating.
Trade disputes could further pressure economic growth. Talks with China have stalled and analysts are hoping that the rhetoric will remain civil ahead of the G20 meeting on June 28th. Both sides seem to be moving farther apart and I don’t believe we will reach a trade agreement with China before the 2020 election. The US will impose tariffs on Mexico until they secure their side of the border. Illegal border crossings are at an all-time high (4500/day). On June 10th the first 5% hike will take place and it will increase by 5% each month (25% maximum). A US-Mexico summit will take place Wednesday in an effort to head off tariffs. Mexico does not want a trade war with the US.
Global bond yields are falling (flight to safety/risk off) and recession concerns are on the rise.
Swing traders are short a half position of SPY at $279. Use a closing stop of SPY $278. If the SPY closes above the 200-day moving average we want to exit. We will set a target of SPY $272. That is a significant technical level and we will take profits there. I want to short rallies and take profits on drops. The trend is lower and economic releases this week will be important.
Day traders should be patient this morning. The S&P 500 was down more than 20 points overnight and it is only down four points now. There is some upward pressure and buyers will see if they can spark a bounce from this level. If the upward momentum stalls, look for shorting opportunities. Today I will use the first hour range as my guide. If the market is above the first hour high I will favor the long side. If the market is below the first hour low I will favor the short side. In the event that we are trapped in the first hour range I will favor the short side. We are below the major moving averages and bounces should be faded.
Watch the ISM manufacturing number after the open. A downside miss will spark selling.
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