My longer-term outlook is still bearish, but a bounce is coming.

PRE-OPEN MARKET COMMENTS MONDAY – From a technical standpoint we don’t have any evidence that a bounce is coming other than a deeply oversold condition. VXX/VIX has hit a technical resistance level that has corresponded with previous bounces.

From a fundamental standpoint, I believe that this news cycle sets up well for a bounce.

1. Inflation is starting to ease. We saw that in the CPI and PPI last week.
2. The jobs numbers are starting to wane (151K last month).
3. Fed officials are forecasting -2.5% GDP contraction in Q1
4. The Fed is much more likely to be dovish than hawkish after a 10% market drop.
5. The continuing resolution passed and a government shut down has been avoided.

From a “pain” standpoint the rubber band has been stretched to the downside. Any further drop will be hard fought as it is stretched farther. On the other hand, a release from the low would have an easy path higher for at least a few days and that lines up with triple witching. I believe that short-term bears are going to take gains ahead of the FOMC and that will spark a small round of buying. That buying should continue after the FOMC.

Longer-term swing traders should be in cash. The next big move will be lower. We need a wimpy bounce that struggles to get through the 200-day MA. If we get that it will signal that sellers are still aggressive. When that bounce stalls, we will have our entry point for shorts. I would suggest taking gains on any shorts you have on right now.

Short term traders can trade a likely bounce. We do need technical confirmation. Overseas markets were strong across the board. That will provide a nice tailwind this morning. Retail Sales (.2%) were better than feared and that was market friendly. In the overnight session the S&P 500 tested the downside and it recaptured all of those loses. The price action Friday was not impressive and buyers are still passive. We should not expect a gangbuster rally today. I would like to see a nice little probe for support early in the day and a nice bounce off of the low. That will confirm that buyers are interested. As the day unfolds I would like to see a steady move higher. I know there will be dips, but I want to see higher lows. I want to see SPY $560 preserved this morning. I would also like to make steady progress to $565. Look for a slow start to the week. Trading has typically been slow ahead of the Fed, but a gradual grind higher would tell me that shorts are nervous ahead of Wednesday. There is not much else to drive the market.

I would be focused on trading from the long side the next few days.

Support is at $560 and resistance is at $565.