The sell-off yesterday breached minor support and now we need to breach the 50-day MA to start taking bearish swing trades.

PRE-OPEN MARKET COMMENTS WEDNESDAY – Yesterday the market gapped down and it drifted lower the entire day on good volume. VIX/VXX rallied and that provided a “tell” that we were in a bearish trend day. Minor horizontal support at SPY $555 was breached. The SPY is within striking distance of the 50-day MA and QQQ is within striking distance of the 100-day MA.

Having two days of heavy selling in the last two weeks when the market is sitting just below the all-time high tells us that there is resistance. Without follow through selling this week and a close below the 50-day MA, we can’t read much more into the move yesterday.

This is a week filled with economic releases. Global PMIs generally came in better than expected. This morning we will get JOLTs job openings after the open and the Beige Book this afternoon. The Beige Book helps analysts gauge economic activity across the nation. Tomorrow we will get initial jobless claims, Challenger job cuts and ADP. I’m not expecting any big surprises on the job front since initial claims have been steady the last four weeks at 230K. I will be watching the initial claims number tomorrow because it could see a “pop” after the holiday. Applications drop ahead of holidays because people focus on getting away for the long weekend and the bureaucrats are not very motivated to process the claims. They are focused on the long weekend as well. Expectations for Friday’s number is 164K new jobs.

Perhaps the most important number this week is ISM Services tomorrow after the open. It is a survey of purchasing managers and as such it gives us a very current read on their forecasts.

I would prefer strong economic growth and “higher for longer” interest rates from a bullish perspective. That would be a sign that the economy is on sound footing and that the Fed does not have to cut. If combined with low inflation readings, the market would make a new high with this backdrop. Unfortunately, I don’t see this scenario playing out. I believe based on the economic releases that we are heading into a soft patch. From a bearish perspective, I would favor weak economic numbers. Initially, the “bad news is good news” crowd would rejoice that the Fed is going to cut rates. They can buoy the market for a little while and that might explain the bounce we saw in August. In time, Asset Managers will reduce risk fearing that the Fed waited too long.

The temptation for CNBC and Fox Business and every trader under the sun is to justify the drop yesterday. Everything I’ve posted in my comments this morning attempts similar. DON’T OVER-COMPLICATE THIS.

Price is truth. It tells us what institutions are doing. If we take out the 50-day MA this week and we convincingly close below it, I will start taking swing short positions. We will have seen a double top lower high and the pullback from the high was considerable (10%). The drop came on heavy volume and the bounce came on light volume. That is a sign that sellers are more aggressive than buyers. If the market can’t take out the 50-day MA with “gusto” this week, it is a sign that yesterday was just “one bad day” and that the market bid is still fairly strong.

Support is at the 50-day MA and resistance is at the all-time high.