Daily Commentary: March 06, 2024

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Powell Will Remind Us of “Higher For Longer”

Posted by Pete Stolcers on March 06

Don’t trust this gap higher. Wait to see if half of the gap up is preserved. There has been selling pressure the last two days and you will get a dip. Here’s the plan.

PRE-OPEN MARKET COMMENTS WEDNESDAY – The selling pressure yesterday actually started late Monday. The market made a new all-time high intraday and that move was smacked down like Chris Rock at the Oscars. Yesterday the market drifted lower all day. The bounces were brief and shallow and with the exception of two M5 bars, the SPY stayed below VWAP. The volume was fairly heavy and the open from the long green candle on Friday was breached. We want those long green candles at a new all-time high preserved. Even if it takes a few days for the market to advance, that’s OK. It is a sign that buyers are still interested and that they are supporting the breakout. When these candles reverse quickly it is a sign that the selling pressure is building. This morning the market is going to test the high from Tuesday right out of the gate.

1OP will have a bearish cycle early this morning. I would not chase this gap higher, I would wait to see if buyers are aggressive. The sellers from Monday and Tuesday are not going to go quietly. They will wait for signs of resistance and they will test the bid.

ADP reported that 140K new jobs were created in the private sector in February. That is inline with expectations and it is an improvement over the 111K jobs that were created in January. The JOLTS number will be posted 30 minutes after the open. I am expecting a solid jobs report Friday. Initial jobless claims have been good the last 4 weeks. We should get a drop in hourly wages. The .6% increase last month could have been caused by states increasing the minimum wage January 1. An hourly wage increase of .3% and 200K jobs would be market friendly. We want strong job growth. Ignore the “good news is bad news crowd”. Full employment is good for corporate profits and consumer spending. It also reduces credit concerns.

Powell is going to testify today and tomorrow and there is plenty of Fed Speak. He is going to splash cold water on the market with his “higher for longer” rhetoric. The economy is strong and inflation is stubborn. There is no reason for the Fed to cut.

Robust job growth and “higher for longer” is good for financials and I have liked that sector for over 3 months.

When I see a new all-time high smacked down with late day selling on decent volume, I take notice. When I see follow through selling the next day on good volume, I take notice. When a long green candle that establishes a new all-time closing high is easily reversed, I take notice. The price action the last few weeks has been “loose”. These are signs of selling pressure.

If the gap up this morning reverses easily, it will be a sign that there is selling pressure. If the market can’t recover the open today, it will be a sign that the selling pressure is fairly heavy. When we do get a dip, I am not expecting anything nasty. If the market can’t recapture the high from last Friday after the jobs report, we should see some soft price action next week.

The most likely scenario today is that we test the gap up and that most of it is preserved. We find support and then the market drifts higher even with Powell reminding us that they are not ready to cut. The market will be dead Thursday while we wait for the jobs report.

If you trade during the first hour, you will miss all of these “tells”. I can’t tell you how this will play out, but I can tell you what I am watching for and how that will impact my trading.

Support is at SPY $507 and resistance is at $510 and $512.

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