Posted by Pete Stolcers on April 24
Posted 9:00 AM ET – This is going to be a busy week. I’ve been telling you to get long for the last week and that advice is paying off. The market has been choppy, but it has been moving higher. This morning the S&P 500 is up 25 points before the open. We will be within striking distance of the all-time high ahead of mega-cap tech stock earnings this week.
The French election results leaned to the “right” and the market liked the result. The official election is still two weeks away. European stocks are moving higher and credit risk (although not high) is declining. Europe’s economic growth has been very solid in recent months.
China’s economic growth has been strong and GDP estimates are being revised upward. We will get official PMI’s in one week.
This Friday Q1 GDP will be posted in the US. It could come in a little light, but analysts are expecting 3% growth in Q2 and that is more important. Flash PMI’s/Beige Book were good and last month’s dismal jobs report is likely to be revised upward.
Economic growth is on sound footing and it needs to be. The Fed has an aggressive tightening agenda and another rate hike is possible in June. Any speed bump in growth will be met with selling.
Trump will have press conferences so watch those events. They typically mean that the market will be choppy.
Earnings season is in high gear. The most critical day will be Thursday after the close and I can’t recall this many “giants” posting on the same. Google, Bidu, Amazon, Intel and Microsoft will post after the close Thursday. I am expecting bullish price action into those releases.
I’ve been advising swing traders to sell out of the money bullish put spreads the last week. This is a passively bullish strategy and it has worked well. I wasn’t sure if we would get a massive rally, but I was very confident that the market would hold support. This strategy allowed us to distance ourselves from the action and we were able to ride out choppy conditions. Time decay worked in our favor and these positions will do very well today. Stocks will rally and we will be lots of cushion as we move away from our short strike prices. Now you just have to manage your profits.
Day traders should avoid getting long near the open. I don’t trust this opening rally and the French elections are not that important to corporate profits. This is a “feel-good” move and it is all “fluff”. The big earnings announcements on Thursday will keep buyers engaged. The market should be able to hold the gains, but resistance at the all-time high will be stiff. I will be waiting for a dip this morning and then I will trade from the long side. I like financials and tech. Resistance was at $236.50 and that is where I would like to get long. If that level fails I will use it as a stop.
Trump’s speech on tax reform will lack substance. Republicans are scrambling to put a healthcare bill together and another failure looms. This is not something that can be rushed and I believe a long-term solution needs to win approval from moderate Democrats. The debt ceiling will be extended Thursday. This has not impacted the market but it could spark a small rally.
This morning we are getting the type of movement I expected for the entire week. Good news will be priced in right away and the market will hang on to the gains this week. If the earnings news is particularly good on Thursday and if the debt ceiling is extended, the S&P 500 could challenge the all-time high.
In short, the surge today will price in most of the good news. The market will chop around and digest the gains (expect some pullbacks) through Thursday. Friday morning we could challenge the high if all of the news is good. Stay long.
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