Daily Commentary: March 22, 2024

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Market Rally Needed Today

Posted by Pete Stolcers on March 22

The market made a new all-time high yesterday, but there was little follow through. Today’s price action will tell us how aggressive/passive buyers are.

PRE-OPEN MARKET COMMENTS FRIDAY – The market staged a nice breakout after the FOMC statement Wednesday and it made a new closing high. Even though the Fed confirmed “higher for longer”, buyers bought after the release. My conclusion was that the message was consistent with what was expected and when buyers did not get the dip they wanted, they started buying. The S&P 500 has been compressing in a horizontal range for a few weeks and it has been waiting for the next catalyst.

One of the reasons we didn’t see any follow through to the gap up yesterday was the dark cloud the DOJ cast over Apple. Anti-trust lawsuits are piling up against the company and this follows the decision from the EU a few weeks ago favoring game maker Epic. Tech has run up on AI optimism and Nvida has not advanced during its big AI conference. Even with this dark cloud hanging over mega cap tech stocks, the S&P 500 was able to advance.

When we have a breakout to a new all-time high, we want that to happen on heavy volume and we want immediate follow through. That confirms that buyers are aggressive and it gives us confidence to ride their coat-tails. If you bought stocks yesterday, there is no reason to panic. This morning the market will open slightly lower. China was weak (-2%) and other global markets were mixed. There is no headwind or tailwind.

Here’s what I will be watching for. I would like to see an early attempt to sell the market. If that initial dip is brief and shallow and we bounce immediately, it will signal that buyers are interested. The rest of the day I would like to see a gradual grind higher and I want to close at or above the high from Thursday. This is critically important. It is the follow through we need. It this breakout stalls today, we are likely to test it next week. Yesterday you should have taken starter longs with the intent to add on strength. If we do not close above yesterday’s high today, I would exit some of the position and I would reduce risk. I’m not overly concerned that we will see a market decline, I just did not get the move and the confirmation I was looking for. If the market starts to drift lower today and we trade below $520.50 the gap from Thursday morning will be filled. We need to see a nice bounce off of that level during the day. I would exit your starter long positions and see what happens next week.

The price action in March has not been as strong as we’ve seen from November through February. We’ve seen more red candles and the price action has been “loose”. There is a good chance that if this breakout fails, we will get the dip we’ve been looking for. Any small losses that you would take will be offset by a better entry. If you’ve been trading relative strength and the stocks from my videos you have gains. Take them.

The economic calendar is pretty light next week and I don’t see any drivers. It’s hard to believe that in a little more than two weeks, Q1 earnings season will start (4/12). I can envision a scenario where the market compresses near the high for a week or two and then starts to grind higher.

Support is at $520.50 and resistance is at the high from Thursday.

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