The market has seen heavy selling pressure the last month and Powell needs to provide a safety net.

PRE-OPEN MARKET COMMENTS TUESDAY – The selling pressure has been heavy the last few weeks and the bounce off of the low has been unimpressive. The price action is choppy and the volume is light. If short sellers were worried and if buyers viewed this drop as a buying opportunity, we would have seen nice stacked green candles on decent volume. The bounce has not been steady and every move higher has been challenged. This is a sign that buyers are NOT that interested and that shorts are not that nervous.

Trading bounces in a downtrend is risky business. If you don’t get the bounce, you will take a beating when the market makes a new low. The better approach is to be in cash so that you are not exposed to a snap back rally. Watch the bounce and look for signs of resistance. If the bounce is brief and stunted, it is a sign that sellers are in control. This pattern would prompt us to take short positions. If the bounce is tall and it lasts a few weeks, buyers are still interested. In this scenario we temper our bearishness.

The Fed has every reason to be more dovish tomorrow. I am expecting the odds of a June rate cut to move closer to 100% (currently 75%) and for the odds of a May rate cut to rise. The PPI/CPI were better than expected and that will give the Fed more breathing room to ease. Fed officials believe that Q1 GDP will be -2.5% and we are seeing soft employment numbers.

The market found support and shorts are taking gains ahead of the FOMC Statement. I expect that to continue today. Overseas markets were all up and that sets a good backdrop. The S&P 500 is down and that is our best set-up for day trading from the long side. This is a bid check and they want to see if buyers are still interested after yesterday’s rally. We don’t assume that they are, we wait and watch for signs of support. Most of the gains from yesterday have been wiped away and that is a big retracement. It means there is decent selling pressure. We need to make sure we have support. If we see instant stacked green candles into the gap on good volume, we can get a little more aggressive with longs early in the session. This is NOT what I am expecting and that pattern is the exception. Instead, I am expecting for a probe for support and a gradual grind higher once it has been confirmed. I do believe that shorts will be running a little scared ahead of the Fed and that is the only reason I would be favoring the long side. This is likely to be a fairly dull day ahead of major news. If you spot a great short, I would not have an issue considering it.

If the Fed is more dovish can we expect to see a bounce after the statement? I believe so. I feel that more damage can be done on the upside than the downside and triple witching could fuel the move.

Is there a chance that a dovish statement could spark selling? If it does, that would be very bearish. Yes it is possible, I just don’t feel it is likely for the first reaction. We could see that move Thursday night. It would be a sign that the Fed is worried about economic growth and that sellers are taking advantage of any bounce to reduce risk.

We don’t always get what we want. I would like to see a nice bounce that runs out of steam at the 200-day MA. That would give us time to evaluate which stocks can’t get off of the deck and the bounce would crush option IVs so that we can buy puts cheaper.

I believe we are going to see some movement today, but on light volume.

Yesterday’s range will serve as support and resistance and we are likely to stay in it today.