Yesterday the market spent most of its day in positive territory and we saw heavy selling in the last hour of trading. Small-cap stocks took a beating and tech stocks have also been vulnerable. This leg of the rally started in November and the tail end has been volatile. We are seeing extreme rotation between sectors.

The NASDAQ 100 will challenge its 100-day moving average and the S&P 500 is likely to challenge the 50-day moving average today. Those support levels have been tested recently and buyers have been aggressive at those levels. We need to see that same enthusiasm this time around. If technical support levels are breached and if the market closes below those levels for more than two days we have to assume that resistance is forming. On the other hand, if we bounce off of those levels and rally the upward trend will continue.

The economic news has been solid and we are seeing signs of growth. Last week Fed officials raise their expectations and they believe GDP growth in 2021 will reach 6.5%. Manufacturing and services PMI’s were in line this week and this morning we learned that initial jobless claims fell to the lowest level in many months (684,000). I’m expecting this trend to continue as states reopen their economies. Next week we will get official PMI’s, ISM manufacturing, ISM services, ADP and the Unemployment Report. This recent market dip can quickly be reversed by strong economic numbers. The hospitality industry employs 8% of our workforce and as restaurants reopen, unemployment should drop quickly.

China’s market is down 15% from the high (correction territory) and the PBOC is tightening. Their economy has an eight month head start and analysts are projecting 9% GDP growth this year.

The Fed has reiterated that it will not raise rates in 2022 and that it is not concerned about a rise in inflation. When we start getting strong economic numbers in the next few months we won’t have to worry about the Fed tightening anytime soon. I believe we are in a “sweet spot”. Consumers have stimulus checks in hand and spending should increase dramatically. The savings rate during the last year has been extremely high and there is money on the sidelines.

Swing traders need to be cautious with bullish put spreads. If the S&P 500 closes below the 50-day moving average for more than two days and if your stocks are breaching technical support, you have to buy them back. If the market tests that level and bounces as it has the last few months, stick with the positions as long as your stocks have relative strength. We are going to hold our SPY position and I’m going to use a wider stop based on the 100-day moving average. I believe that until economic conditions improve we are going to see market volatility. I don’t want to be shaken out of that position when we are on the brink of an incredible recovery.

Day traders are in a position to take advantage of these intraday moves. Yesterday I mentioned favoring the long side if we are making a new high after two hours and to favor the short side if we are below the low after two hours of trading. If you followed my advice you were shorting in the last hour of trading and you did well. These late day moves have been able to gain traction. Use the Option Stalker 1OP indicator as your guide during the day. After late day selling Tuesday and Wednesday we were going to test the downside this morning. Ideally, we would have gapped higher and that would’ve provided us with an excellent entry point for shorts. Since stocks are down I would wait for the dust to settle and to instead watch for an opportunity to buy once support is established. Use the 50-day MA as your guide.

Support is at the 50-day moving average and the next level of support is SPY $382. Resistance is at $392.