Daily Commentary: March 26, 2024

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This Is the Market Pattern

Posted by Pete Stolcers on March 26

The “easy” money during this rally has been made. Now we are falling into a more normal pattern.

PRE-OPEN MARKET COMMENTS TUESDAY – As this rally matures we are seeing the momentum wane. The price action in the last month has been more horizontal relative to the last few months and that is normal. Spikes up to a new relative high are met with selling pressure. Support is confirmed, the price action compresses and then we have another leg higher. I believe we will see a small leg higher and it could start Thursday.

First of all, here’s what you should NOT expect. Long red candle, long red candle, long red candle. Major reversals like that would only come on a major news released and there are not any scheduled. Secondly, the macro backdrop would have to change dramatically. Earnings, interest rates or economic growth would have to shift suddenly. There is nothing to suggest that. Furthermore, the price action the last four months tells us that buyers are in control. Put the fears of a big drop behind you.

Asset Managers are looking to place money. They were all hoping for a dip after the FOMC statement and so was I. That would have provided us with an excellent entry point. We got the news we wanted. The Fed is extremely hawkish and they are not in a hurry to cut rates. When the market doesn’t drop on what should be bearish news, it is a sign that buyers are aggressive. When they didn’t get the drop, they bought.

There are a couple of catalysts coming up. They are very minor in nature. End-of-month/Beginning-of-the month fund buying will support the market. There will be a little bias for end-of-quarter balancing. Equities have been up during Q1 and bonds have been down. That means the funds will sell stocks and buy bonds. Most funds balance monthly these days (not quarterly). Both forces combined should be neutral.

Earnings season will start in less than two weeks when we return from holiday. That typically strengthens the market bid. The positive reaction to the FOMC has also held up fairly well. The market moved higher on hawkish news and those gains are being preserved. That is confirmation that the bid is strong.

All things considered, there is no reason to believe we are going down and there are a few reasons to believe that we could start drifting higher in a few days.

This is a low probability trading environment. For both day trades and swing trades, identify stocks that have strength. Set alerts to buy dips and don’t chase breakouts. If you are day trading, take gains when the move stalls and don’t expect any big runs. For swing trading, you might have to hold the position for a few days before you get a small market tailwind.

Overseas markets were up slightly and the market should erase yesterday’s losses on the open.

Support is the low from yesterday and resistance is the high from Friday. Expect fairly dull action today.

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