Yesterday saw an impressive recovery in all of the indexes, and for once, there was some real volume behind it. We saw follow-through in Europe and Asia, but starting at about 6:00 am EST, profit-taking kicked in, leaving the NASDAQ 100 negative (from plus 80 to down 80 at this writing) and the S&P 500 just slightly positive (from up 20 to up 7 at this writing).
That said, we need some follow-through today to ensure that this rally attempt succeeds where the last one stalled. There is a good argument that wave structure supports yesterday’s turn. But as we saw with the head and shoulders reversal pattern that appears to have failed, a certain number of traders will jump in on the wave structure too – but we need consensus to pull us higher.
Today, the downside is guarded on the S&P 500 at yesterday’s low, coincident with its 50-day moving average and Weekly Expected Move low. Yesterday’s low in the Nasdaq 100 is a bull/bear threshold as well, supported by the bottom line of a triangle unfolding on the daily charts.
This is a short-term trader’s market for now, so swing-trading is inadvisable. I will continue to share our trades, but if you are not in front of a computer all day, I don’t advise getting involved here quite yet. And that does not even account for what can happen overnight.
Consumer spending came out a bit lower than expected this morning, and it was down for February, putting a damper on the higher interest rate arguments. As well, Angela Merkel, Germany’s Chancellor, says, “We are now basically in a new pandemic. The British mutation has become dominant.” She goes on to say, “Fundamentally, we face a new virus of the same kind but with very different characteristics,” she said. “More deadly, more infectious, and infectious for longer.”
Suffice it to say that Europe is having a whole different experience than the U.S., returning to strict lockdowns and economic distress. U.S. cases are on the rise as well over the past few days. It is hard to see the kind of economic growth on the horizon that would continue to pressure interest rates if we are about to experience the third wave of a more lethal virus. Global growth also will be snuffed out without Europe’s participation. There are also murmurings from China about another, more lethal virus wave.
Day Trading Plan
I don’t trade on Fridays due to weekly options expiration and associated cross-currents. But the key issue today is to hold yesterday’s lows.
The NASDAQ 100 is coming into the open with overnight inventory balanced. The index managed to poke above yesterday’s high overnight but could not hold the level. We will open in the middle of the overnight range, so the better trades will likely come later once a direction has been established. Expect the index to test either or both ends to of the range to see where the path of least resistance lies.
The S&P 500 is a similar story, opening in the middle of the overnight range. At least the S&P 500 has managed to hold above yesterday’s high overnight, indicating relative strength over the NASDAQ 100.
As previously discussed here, we are coming into the end of the 1st calendar quarter, and money managers may dump tech to put some cyclical names on their quarterly reports. So the NASDAQ 100 and typical growth names may continue to suffer through month-end, at least in terms of relative performance. That is what I mean by window-dressing.
We continue to have seasonal and cyclical strength through early April. Both seasonal and cyclical tendencies should begin to assert the downward pressure I have been anticipating and discussing incessantly in these writings. I could argue that the NASDAQ 100 is forming a triangle on the daily charts, so be aware of the bottom triangle lines.
A.F. Thornton