Everyone is wondering if the market is going to bounce off of the 100-day MA or fall below it.

PRE-OPEN MARKET COMMENTS FRIDAY – Yesterday the market gapped up through the 50-day MA on better than expected earnings from Nvdia. After an hour of trying to advance, the bottom fell out. It breached the low of the day and the 50-day MA with ease. This was not a gradual drift lower with mixed overlapping candles and we did not take out support by poking at it. These were stacked red candles on heavy volume. Sellers obliterated it and the rout was on. By the close the market tested the 100-day MA.

The market drop tells us that the selling pressure is building. We need to keep yesterday’s price action in context and it looked much worse than it was. The gap up created a perfect opportunity for downward momentum. Once we cracked the low of the day, sell programs kicked in and the drop fed on itself. The 100-day was a natural magnet and we went right to it.

Today we can expect the market to float back into the range. We should see a fair amount of price movement both ways. Buyers and sellers have been motivated and the market is not going to roll over and play dead into year end.

This morning we learned that there will not be a jobs report or a GDP release before the December 10th FOMC meeting. These are uncertain times and we don’t know where economic growth stands. The Fed repo window has been busy and that is a sign that liquidity is a concern. At a time when the Fed should err on the side of caution, we learned that most Fed officials don’t want to cut rates in December. That is one of the reasons the market dropped yesterday and we learned this from the FOMC Minutes Wednesday.

This morning flash PMIs will be released 15 minutes after the open and Consumer Sentiment will be released 30 minutes after the open. Both should be weak due to the shutdown.

The market takes the elevator down and the stairs up. When you trade from the short side you have to take gains into long red candles. I am expecting a bounce next week and we should be able to get back to SPY $665. The move back will be gradual and choppy. Trading next week will be fairly quiet with the holiday stripping most of the activity away. It is closed Thursday and Friday is a half session. For all intents and purposes, Wednesday is one of the busiest travel days and you can take that out of the equation as well.

Since the failed bounce last week and the lower high I have been neutral. The selling yesterday was impressive and buyers are losing control. I am not bearish, but I certainly would favor trying some shorts at higher levels… especially if we struggle to recapture some of yesterday’s range.

Option IVs spiked and I like selling OTM put premium. I had to reel in my bullish put spreads yesterday and I was able to make money on them. The crazy thing is they would all have been profitable if the market just coasted into the weekend. They were well out of the money. I suspect that others might have been using the same strategy I was and that created vulnerability. Once the programs kicked in, traders like myself had to adjust risk and that fueled the move.

Now that the damage has been done and now that IVs have spiked, I feel even more confident using the strategy at this level. I just have to find strong stocks and I need to shorten my trade duration. I am relatively flat and I only have a few bullish swing trades on.

From a day trading standpoint, these are excellent times. The ranges are wide and the moves are sustained. If you see a nice move in one direction stall, get ready for a move the other way. If the price action is choppy today with long mixed candles and long tails and wicks, it will be a sign to lay low.

Support is at the 100-day MA and resistance is at $658.