How Will Markets Handle Gap-Up to Start the Week?

Key levels for the S&P, Nasdaq.

Largely, I think what we wrote on Friday still applies regarding the current trading environment. If you missed that or want to give it another read, feel free to do so. 

It mostly centers around this point: The current trading environment is not easy! 

It’s a choppy, sloppy market as interest rates continue to rise and as various asset classes continue to send mixed messages. Hell, even different sectors are sending mixed messages!

In my humble opinion, traders are caught between two key trading rules: 

1. Don’t fight the Fed

2. Don’t fight the trend

The Fed is hawkish, but the Nasdaq is trying to break out. That creates a tough concept in traders’ heads, because for many, their whole career has been pegged to these rules. 

Not fighting the Fed would equate to not being a buyer, while not fighting the trend would equate to not being a seller. 

See the problem? 

And maybe, that’s the whole point — maybe we should be neither until a more clear trend emerges. 

The Nasdaq trades well, but the S&P has been tough. It’s not breaking down but it’s struggling for traction. The SPX (index) opened the month at 3963 and on Friday it closed at 3970. So despite all the movement this month, it’s gone nowhere! 

Technical Edge — 

• NYSE Breadth: 60% Upside Volume 

• Advance/Decline: 61% Advance

• VIX: ~$21.50

S&P 500 — ES 

From Friday’s low to the Globex high, we’ve already traveled about 100 handles. Markets seem to be celebrating the fact that no one blew up over the weekend. The ES faces a major test as it tries to push through the 4025 resistance area and the 50-day moving average. 

• Key Pivot: ~4010

• Downside levels: 4000, 3985, 3973, 3957

• Upside Levels: 4040-35 + 50-day sma, 4045, 4065-70.

SPY