This question will be answered this week. A lack of follow through will indicate that buyers are not that interested at this level.

PRE-OPEN MARKET COMMENTS MONDAY – Last week the Fed cut interest rates by 50 basis points and that was bigger than expected. Powell doused concerns that they are reacting to weak domestic data points. He said that inflation was subsiding and that they wanted to preserve employment levels. They did not want to wait for weakness. This was a bullish outcome for the S&P 500 and it rallied to a new all-time high.

My concern has not been the US, it is the rest of the world. China has been the global economic growth engine for decades. They are on the brink of a real estate collapse, over capacity (supply issue) and decreasing consumption (demand issue). This has resulted in deflation and that is a major warning sign.

Europe has been on the verge of a recession. Germany’s GDP is expected to grow .1% this year and that is not inflation adjusted. Chief economists in Germany believe that growth will be -.2% this quarter. Today we learned that Germany’s flash PMI fell to a 7 month low (47.2) and France reported an eight month low (47.4).

China and the EU comprise a third of the world’s GDP and perhaps Powell is concerned about the global back drop.

It’s always good to be mindful of the fundamental backdrop. We don’t have to be “experts”, but we need to be aware. This helps us to see “both sides of the coin” and we are less likely to be blindsided.

The technicals look good. The market bounced after two drops in the last two months and it made a new all-time high last week. Sellers were not aggressively reducing risk. If they were, we would not have made a new all-time high. This week we will try to test that breakout (was resistance, now support) and if it holds, we will know that buyers are keeping sellers at bay. It is common for breakouts to be tested. We want the tests to be brief and we want to see follow through in the next few days. That would be a sign that buyers are satisfied that the breakout is going to hold and that this is an attractive level to buy more. There has to be a sense of urgency on the part of buyers and they need to feel that the market will not sit at this level very long. That would result in a new all-time high this week. They could be excited by a dovish Fed and a solid domestic economic backdrop.

If the market easily breaches the previous high (SPY $565) then last week’s strength becomes suspect. Perhaps it was sparked by short covering and triple witching buy programs.

The market is opening higher this morning. Europe and Asia were up marginally so there is a little upside tailwind. There is no need to rush into day trades. The news is very light this week. I would favor the long side, but I would prefer to evaluate the price action for 30-45 minutes. If I get a dip, I can take my time finding longs and I can set alerts. If the market grinds higher and the price action is steady, I can enter longs with confidence.

From a swing standpoint you should have some starter longs. I would not be adding until the market takes out the high from last week with gusto. We want that to happen in the next few days and we want to see some decent volume. Tech stocks seem poised to make a run and they have room.

Support is at SPY $565 and resistance is at the all-time high.