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Inflation Subsides – Watch This Bounce
www.oneoption.com
The market needed some good news to stop the bleeding and it got it today.
PRE-OPEN MARKET COMMENTS WEDNESDAY – The market decline has been steep and swift. The selling pressure has been strong and the first deep drop like this after a bullish market tends to produce a nice bounce. The character of the bounce will tell us just how strong the selling pressure is.
THIS IS ONLY A BOUNCE.
The first course of action is to reduce short exposure if you have any. There will be a tradeable bounce for seasoned traders. The first move higher will not be very good. We might get a nice day today and then probe deep for support tomorrow or in the next few days. If you load up on longs and you hold overnight, you will be shaken hard. Chances are you will not be able to take the heat and you will exit bullish positions for a loss. The better course of action is to trade this from the long side if the buying pressure builds during the day. Wait for the gap up to hold. We don’t want to fill much of it. The initial reaction to the CPI was big and those gains were quickly slapped down. That tells us there is likely to be a bid check after the open. This is not likely to be a Gap and Go…. so cool your jets. Wait for confirmation of support. If the market makes a new high for the day in the first hour, you can get behind that move. We need nice green candles and volume. Take most of your gains (if not all) today. The PPI is tomorrow.
Be the second mouse. After a retest in the next few days, support will be confirmed. That will lead to a more meaningful bounce that could last a couple of days. We have the FOMC Statement next week and a lighter CPI will give the Fed more flexibility to ease. Economic conditions are deteriorating and the market wants the Fed to ease like other central banks have been.
The height, character and duration of this bounce will tell us how heavy the selling pressure is. A wimpy bounce that stalls below the 100-day MA would signal that sellers are aggressive. Economic conditions around the world are slipping and there is a great deal of uncertainty. From a swing trading perspective, our best odds of success will come on a stalled bounce below the 100-day MA. That is when we can take short positions. DON’T TAKE YOUR EYE OFF OF THIS PRIZE.
Trade the bounce with small size if you are a seasoned trader. Do not overstay your welcome. Know that a retest is coming and that it will present a better opportunity to trade the bounce. We want that higher low double bottom.
Support is the low from yesterday and resistance it the 200-day MA.
Content is provided by OneOption, LLC, which has no affiliation with Regal Securities, Inc. (“Regal”) This commentary is provided for information purposes only, and is not a recommendation, offer or solicitation by Regal to buy or sell securities or to adopt any investment strategy. Regal has not participated in the creation of the OneOption content and does not directly or indirectly endorse the content. Any reliance on this material is at the sole discretion of the reader.