Daily Commentary: October 08, 2024

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Waiting Is the Hardest Part

Posted by Pete Stolcers on October 08
www.oneoption.com

The market has been compressing near a new all-time high and it is waiting for a catalyst.

PRE-OPEN MARKET COMMENTS – There isn’t much news and the calendar is light this week. Earnings season will kick off and banks will announce towards the end of the week. People have jobs so credit defaults should be low and profits should be inline. Banks don’t typically move much, but we need them to hold current levels. The market bid is typically good as we head into earnings season.

Yesterday the market drifted lower and it breached AVWAPQ. We have not seen any follow through buying after the FOMC statement and we are in a tight compression. At this stage Asset Managers are not aggressively adding to risk exposure. We know this because there was no follow through to the breakout two weeks ago. No one feels like this is their last chance to buy. They are waiting for earnings, the election and the next FOMC statement. That “window” will happen the first week of November.

As long as we stay in this compression, we can expect the price action to vary from day to day. Yesterday was a bearish trend day. One thing that caught my attention is the steady rise in VIX/VXX. That is a sign that Asset Managers could be buying portfolio protection (index options) and that they expect volatility. This is a form of hedging.

Swing traders should only have starter long positions on. I would not be adding.

SPY is recovering some of the losses from yesterday. I am still leaning towards the long side for day trading, but there is no reason to fight the intraday price action. If we get a normal bid check, be patient and wait for support. If the selling pressure is persistent and the SPY spends most of its time below VWAP, know that you might not be trading.

This morning I would not chase the gap up. I would exit any overnight longs. We want most of the gap up preserved and we want the bid check to be brief and shallow. If we get that, there will be a chance to trade from the long side. Keep an eye on VIX/VXX. We want to see it retrace.

Overseas markets were generally soft overnight.

Support is at SPY $565 and resistance is at $570 (AVWAPQ).

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