Daily Commentary: June 30, 2023

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The Market Looks Good

Posted by Peter Stolcers on June 30

This was just a normal round of profit taking in a bullish trend. Fund rebalancing ran its course and that slightly negative influence ran its course this week.

PRE-OPEN MARKET COMMENTS FRIDAY –Durable goods orders were better than expected (1.7%) and the third estimate of Q1 GDP came in at 2% (vs 1.3%). Initial jobless claims dropped to 239K.  Powell still believes that a soft landing is possible and the Fed is leaving the door open for more rate hikes. Central bankers were generally hawkish at a summit this week. China’s manufacturing PMI came in soft at 49.0 as expected.

Bank stress tests were released. According to the report, bank balance sheets are strong and large banks are well positioned to weather a severe recession and continue to lend to households and businesses even during a severe recession.

All 23 banks tested remained above their minimum capital requirements during the hypothetical recession, despite total projected losses of $541B. Under stress, the aggregate common equity risk-based capital ratio-which provides a cushion against losses-is projected to decline by 2.3 percentage points to a minimum of 10.1%.

The $541B in total projected losses includes over $100B in losses from commercial real estate and residential mortgages, and $120B in credit card losses, both higher than the losses projected in last year’s test. The aggregate 2.3 percentage point decline in capital is slightly less than the 2.7 percentage point decline from last year’s test but is comparable to declines projected from the stress test in recent years. The disclosure document includes additional information about losses, including firm-specific results and figures.

The action will be slow and the market closes early Monday. The 4th of July is on Tuesday so most traders will take Monday off. We do get a nice round of economic data next week and the jobs report will be posted a week from Friday.

In general, I like the market and I favor trading from the long side. I feel that Q2 rebalancing has run its course and that negative influence is behind us. Credit concerns will wane after the bank stress tests and economic growth is still good. There is room for more tightening, but we are close to the end. The action is likely to slow down today. Expect LPTE and try to find a few decent trades. Be very selective and make sure the stocks you are trading have above average volume.

The market will open strong. There was not any news to justify a gap and go rally today. Overseas markets were up slightly. Be patient and wait for a dip. The price action has been choppy this week. If we get the dip, wait for horizontal support (tails) or a bullish hammer/bullish engulf. If the market compresses for an hour and it holds the gap, we will not get a dip and it will be a sign that buyers are in control. Start scaling into longs after an hour of trading if you see this pattern. It would be a sign that the market is going to drift higher.

Support is at $435.54 and $438.11. Resistance is at $443.61

Enjoy your celebration of our great nation. Happy 4th of July!

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