Daily Commentary: May 09, 2024

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Trade What You See

Posted by Pete Stolcers on May 09

Often times traders are influenced by the news and by what they think it means. Just follow price.

PRE-OPEN MARKET COMMENTS THURSDAY – The market broke through key resistance at the 50-day MA and AVWAPQ this week. We need to see follow through buying the next two days and the week needs to finish strong. If resistance is still near the all-time high and if the market can’t assault that level, it will form a lower high and then we could see a more significant round of selling.

The rally from November through March was incredibly strong and those buyers are not going to vanish. The first dip was going to be brief and shallow. Bull markets die hard. It was a little deeper than I thought it would be and the recovery has been a bit more sluggish than I wanted to see. That is a sign of selling pressure.

We are long starter positions from the bounce and we added on the breakout this week. I am not ready to add to those positions unless we blow through the all-time high. If we can’t make a new high for the week, I might even pare the recent long positions that were added. This is a “plug your nose and buy” type of move.

This morning initial jobless claims hit the highest level in over a year. Jobs have been the cornerstone to economic growth and the last jobs report was “light”. GDP dropped 2% Q/Q and ISM services fell into contraction territory for the first time in over a year. I don’t like the backdrop. Higher for longer was fine as long as growth was robust. Now we don’t have that. If the Fed remains hawkish, Asset Managers will reduce risk. The market will make a lower high and then we could see a more substantial decline.

I am trading what I see and not what I think. From a technical standpoint, I need to see follow through buying these next two days. If I get that, I will stay long. If not, it will be a sign that resistance is building and that we might have a double top. The longer it takes for the market to make a new all-time high, the more likely we are to roll over. A breach of the 50-day MA could gain traction and if I see that, I will be ready to pivot to a bearish bias.

For now, stay flexible and watch the price action the next two days. This is a critical juncture. Support is at the 50-day MA and resistance is at the all-time high.

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