Daily Commentary: October 31, 2023

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Signs That the Market Could Bounce

Posted by Peter Stolcers on October 31

These signs are not worthy of bullish trades, but they should prompt you to take gains on shorts.

PRE-OPEN MARKET COMMENTS TUESDAY – Yesterday the market gapped up and it preserved half of that gap. That was a sign that buyers are interested near the low of the month. The price action featured a few long green candles, but the volume was not slightly better than average. I believe this could be short sellers taking gains ahead of the FOMC statement tomorrow. We could also be seeing a little end-of-month fund buying.

Major economic releases are scheduled this week. They include the official PMIs, ISM manufacturing, ISM services, ADP and the jobs report Friday. The FOMC statement will be released tomorrow and a pause is expected (97%). Fed Funds futures are pricing in a 30% chance for a rate hike in December and traders will be looking for rhetoric that is consistent with another pause in a month. This is a busy week for earnings releases and AAPL will post results after the close Thursday. These are all material releases and there will be a catalyst to fuel a move one way or the other.

The price action the last few weeks has been bearish. There are a few signs that suggest that the market is going to bounce, but nothing that we would put money behind. The market is “oversold” based on RSI and Bollinger Bands. We are entering the most seasonally bullish time of the year, we have a bullish 1OP D1 cross and we poked through the lower end of a trading channel which is typical of a selling climax. With major news pending, take gains on your shorts and wait for the reaction to the news this week. If the market struggles to recapture the 200-day MA, I would consider that to be bearish. If we see stacked green candles on heavy volume and we attack the 200-day MA, we might have an opportunity to trade from the long side.

We are likely to have dull trading today ahead of major news. Make sure the gap up holds. I believe this move will be tested especially after a rally yesterday. Overseas markets were up nicely with the exception of China. Once support is established, I am expecting a bullish bias. I believe that short sellers will continue to take gains ahead of the FOMC statement Wednesday.

Support is $410 and resistance is $418.

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