Daily Commentary: March 23, 2022

Jeremy Engelbrecht1Option Commentary

Swing Traders Watch For This – Conditions Are Improving!

Posted by Pete Stolcers on March 23

PRE-OPEN MARKET COMMENTS WEDNESDAY – Yesterday the S&P 500 closed above the 200-day MA on light volume. Bulls will try to keep the market above that key support level and a close above it Friday would confirm that support is forming.

The issues plaguing the market (inflation, Fed tightening and the war in Ukraine) have not improved, but the initial shock of these events is starting to wane. The first rate hike by the Fed will not have much of an impact, but they plan to hike by 25 points for each of the remaining 7 meetings this year. The cumulative effect will matter, but economic effect may not be known for many months.

The economic calendar is light this week.

I am always mindful of news regarding Chinese property developers. Many of them are not going to report earnings on time and that is very bearish. Evergrande found out that a bank had seized $2B that it was using to collateralize other loans. A credit crisis in China would make 2008/2009 look like child’s play. This is something we need to watch very carefully. This is the biggest market threat.

Swing traders with a 3+ week horizon should wait to see if we close above the 200-day MA this week. If we can hold this level, I will look to sell out of the money bullish put spreads on the next market drop. I still expect to see some after-shocks, but now we know that the bid is strengthening and the threat of another big leg lower is reduced. This is the technical confirmation we needed.

Day traders should look for an early buying opportunity. I believe that we could see stacked green candles with little to no overlap near the open (20%). That would be a gap reversal and it is the only pattern that would prompt me to trade early. If this happens we will quickly fill the gap and we could challenge the high from Tuesday. A better scenario for us is a gradual drift lower with mixed overlapping candles (30%). This would be a weak attempt to test the 200-day MA and if my suspicion is correct we will see buyers come in well before that. That initial drift lower will give us a chance to find stocks with relative strength. We do not want the 200-day MA tested easily. We want it defended before we even get close. Another likely scenario is a flat open with little movement (30%). Eventually, buyers will come in when they see support above the 200-day MA. An unlikely scenario (10%) is a bear trend day that closes below the 200-day MA. Buyers have been steady since the FOMC and a light news environment favors the recent upward momentum.

Support is at SPY $446. Resistance is at the 100-day MA.

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