Expect Light Volume and Tight Ranges Through Friday
Posted by Pete Stolcers on March 28
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If you look at a daily chart of the S&P 500 you can see that we are trapped in a very tight trading range near major horizontal resistance. Traders are waiting for official PMI’s on Monday. Earnings season is only a few weeks away and warnings are possible. Expect light trading and tight ranges through Friday.
Trade negotiations with China are progressing. Terms for protecting intellectual property are almost finalized. The summit won’t happen until June (at earliest) and there are still wide gaps that need to be filled.
Brexit is in limbo and the parliament only has until April 12th to unify (unlikely). The EU is fed up with England and this indecision is hurting economic growth in member nations. The EU is taking a hard line and it does not want to make this process easy. England was told that this is the last extension. If the EU pushes the date back it will come with penalties/conditions.
Next week there will be many major economic releases. Monday morning official PMI’s will be released and traders will be watching the data from China. They want to see if fiscal and monetary policies are stimulating economic growth. ISM manufacturing, ISM services and ADP will also be released. Traders will want to see if February’s dismal jobs report (20,000) was a fluke. The market will tread water as long as domestic economic growth remains strong.
Earnings season is only a few weeks away. Stocks are trading at the upper end of their valuation range (forward P/E of 16.5). Good earnings are priced in.
The Fed is dovish and the FOMC statement a week ago was everything the market could have hoped for. The yield curve has inverted and that is typically a bearish.
Swing traders are short a half position of SPY. Use a close above SPY $281 as your stop. We want to stay below horizontal resistance and we want to see selling pressure soon. If the market drops we will add to the position, but there is no standing order at this time. The market lacks direction.
Day traders should use the first hour range as a guide. We are likely to stay within it and you should fade the extremes. Reduce your trade count and size.
Look for light volume and tight ranges the rest of the week. The action will pick up Monday.
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