Last night I suspected the EMini S&P had a breakout setup for Wednesday. It wasn’t a clear cut breakout setup so I thought I’d watch the overnight action to see if things were more definitive this morning.
There was, in fact, a large downside breakout move last night as the Chinese announced a list of retaliatory tariffs for US goods in the recent trade spat. This move pushed stocks dramatically lower and left us with a question for today’s session: Would the market continue its breakout selloff, or would buyers step in and start a rally?
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This gave us two potential scenarios for today. For the selloff to continue we would need to have sellers be willing to sell at increasingly lower prices. If the selloff ran out of momentum, a rally could have a lot of buying interest if late sellers decided to throw in the towel and cover shorts. Such a rally could create a positive feedback loop; the higher the market went, the more pressure on shorts to cover and new longs to purchase.
The 8:30 AM open was 2572.50, just below the Tuesday low. There was no downside follow through, and the market rallied from the outset. I sent out a recommendation to buy if the market rallied above the last overnight high of 2581.50- I was interested in buying if we had some confirmation of buying pressure.
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We had some time for this purchase, as the market spent about 15 minutes trading back and forth over the entry level. It pulled back to retest it and then the rally gained steam as the morning went on. Clearing 2590 (the 200 day SMA) and then the 2600 level boosted the rally as the morning went on. The overnight high of 2612.75 is the next upside target.
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