Daily Commentary: March 31, 2021

Jeremy Engelbrecht1Option Commentary

More Bullish By the Day – The Market Feels Like It Is Going To Breakout

Posted by Pete Stolcers on March 31

Yesterday the market traded in a very tight range and it was waiting for major economic news. This morning we learned that private sector job growth in the month of March hit its highest level since September. After testing the 50-day moving average last week, the S&P 500 has bounced and it has been able to hold those gains. With another quarter of profits under our belt, I believe that the market is going to make a run at the all-time high.

ADP reported that 517,000 new jobs were created in the private sector during the month of March. That was slightly less than the 555,000 new jobs that were expected, but it is still a robust number. ADP processes payrolls for small and medium-size companies and I trust this number more than I do the Unemployment Report. Strangely, jobs report will be posted when the market is closed Friday. Traders will be leaning on the ADP number and they will closely watch the initial jobless claims number Thursday. Last week’s initial jobless claims number was the lowest we’ve seen in months. States are reopening and we should expect a big jump in the next two months.

Yesterday, Consumer Confidence hit an incredible 109. Savings rates are elevated there is approximately $1.3 trillion in cash sitting on the sidelines. In a low interest rate environment that money will find its way into the market and much of it will be spent in stores. M2 money supply has been growing at a parabolic rate and the system is flush with liquidity.

Earnings season will be upon us after we return from Easter. Typically the market bid strengthens ahead of the releases. Q4 guidance was much better than anticipated and I believe that earnings will be strong. With another quarter of profits under our belt, valuations will start to normalize.

Fears of rising interest rates have subsided and US 10-Year Treasuries appear to have formed support. The dip from Monday retraced and bonds may be forming a higher low. That type price action would confirm support at the low and that would be good for tech stocks. The other concern is higher corporate taxes and a $2.3 trillion infrastructure bill. That news is out and we will see how the market handles it. Even if this bill passes, it will take time to implement. The Fed has been steadfast and it does not plan to raise interest rates until 2024. Strong economic numbers without the fear of tightening puts us in a “sweet spot”.

Swing traders should remain long SPY. Use the 100-day moving average is your stop on a closing basis. You should also be selling out of the money bullish put spreads on strong stocks that have broken through technical resistance levels on heavy volume. The market headwinds have been stiff to this point and this options trading strategy allows you to distance yourself from the action and to take advantage of accelerated time premium decay. I still expect to see a three steps forward and two steps backwards rally for the next few weeks.

Day traders should look for an opportunity to get long. Apple was upgraded overnight and it will provide a boost to tech. A breakout above QQQ $318 will breach the downward sloping trend line and this could be an opportunity to buy tech. Chinese stocks were hammered and some of that was from the unwinding of the failed hedge fund. The Xinhua China 25 Index (FXI) is above the 200-day moving average and those stocks could catch a bid. We were seeing strength in names like BIDU yesterday. Overseas markets were a little soft so wait for the bid to be confirmed. Look for relative strength as always. Heavy Buying, Relative Strength 30 and BullRun are your Options Stalker go to searches. There was a small test that the market passed yesterday in the last 15 minutes of trading. Sell programs were trying to trigger sell stops at the low of the day and buyers quickly jumped on that opportunity. You can see the last bar of the day was long and green. Little clues like this tell me that the bid is strong.

Support is at SPY $393 and resistance is at $397.

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