That is the question on everyone’s mind after a 50 basis point Fed rate cut.

PRE-OPEN MARKET COMMENTS MONDAY – Two weeks ago the Fed aggressively cut interest rates by 50 basis points. They said that they were being proactive and that economic growth was still intact. The market does not believe that based on the price action after the FOMC. If economic growth is strong and inflation is easing, a 50 basis point rate cut should have excited buyers, but it didn’t. The SPY has barely budged since the announcement.

Last week the continuing resolution was passed by Congress. That was largely expected, but we normally see a small relief rally. End-of-month buying should have attracted some buyers and we got good tech earnings (Micron). Technically, there is a Cup & Handle breakout and we are at the tail end of seasonal weakness. What gives?

The market is waiting for confirmation that economic growth is stable. ISM Manufacturing, JOLTS, Challenger Gray and Christmas, ADP, ISM Services and the Jobs Report will be released this week. Judging from the 4-week average of initial jobless claims, the BLS report Friday should show about 150K new jobs this month. ISM Services on Thursday will also be important. As a survey it is very current reading.

Official PMIs will be released Tuesday and Wednesday and that will help us gauge global growth. Recent data points have revealed weakness in Asia and Europe.

China’s market is melting up. FXI has gained more than 30% in a week after the PBOC announced a stimulus plan. I believe this is a massive short squeeze. It is a classic example of why it is difficult to short. Even with a horrible fundamental back drop and poor technicals, all it takes is central bank intervention to spark a massive rally that destroys shorts. I’ve witnessed similar short squeezes in the US during the 2008 financial crisis and central banks strike when they feel they can inflict the most damage on shorts. China has deep structural issues that will take many years to resolve and it is trying to avoid a credit crisis. If you are long Chinese stocks, tread cautiously. You do not want to be the last one standing when the music stops. I have alerts set and I believe a great short will set up in time. Do not short now. These melt-ups can last a lot longer than you might think.

When you get a nice market breakout, you want to see immediate follow through. That signals that buyers are anxious and that they view this as a great opportunity to buy. That type of price action tells us that they feel they will not have a better entry point and they don’t want to miss it. We are not seeing this level of enthusiasm. That has me pretty neutral.

From a swing standpoint you should only have starter longs on. I don’t see adding to those positions until we convincingly take out $575.

From a day trading standpoint, don’t chase. Every gap up goes through a bid check. Wait for support and buy those dips. This morning we are going to test the downside. Wait for support and favor the long side. AVWAPQ is at $570 and that is support. If you see a series of red candles, you need to patiently wait for support. That would be a sign of steady selling pressure. Mixed overlapping candles would be less daunting and it would be a sign that there is some buying interest. Then you would want to see $570 hold with a nice bounce off of it.

The price action since the FOMC has been garbage. This week traders will be watching all of the economic releases very closely. The activity has been news driven so tread cautiously. You should be in “buy the dip” mode. Know that if the market keeps drifting lower, you are not going to be trading. If the market goes through a normal bid check and support has formed (Bullish hammer, bullish engulf, series of nice green candles…) then you have an opportunity to buy strong stocks. This is your best set up in this environment. The price action is choppy and there is no clear direction.

I will be taking Tuesday and Wednesday off. Tread cautiously.