Posted by Pete Stolcers on May 1
Posted 9:30 AM ET – Yesterday the market was content trading in a tight range ahead of major news announcements this week. Then Israel presented evidence that Iran has been working on a nuclear weapon and that it never honored its agreement with the US. Stocks sold off on the notion that Trump will revoke the agreement. I believe that the news the next few days will overshadow that event.
After the close today Apple will post results. Suppliers have been warning and Apple has retraced. Of the S&P 500 companies that have reported profits have increased 25% year-over-year and revenues are up 10% year-over-year. These results are excellent and stocks have been able to tread water. Valuations are little rich, but stocks will grow into them in the next quarter.
The FOMC will meet tomorrow. Inflation (wage and price) has been moderate and they have breathing room. I believe they will stick to the plan (two more rate hikes this year) and the reaction will be market friendly.
On the political front the headwinds are easing. North Korea plans to denuclearize, the Syrian air strike was a success, Trump postponed European tariffs for a month and a delegation was sent to China this week to negotiate a trade deal. The Iranian nuclear deal should not have a major impact on the market (although we can expect higher oil prices). The US will impose sanctions but there will not be a military presence. Many Arab nations are also supporting our stance (United Arab Emirates, Iraq, Saudi Arabia and Jordan). The market will expect us to pull out of the agreement so this news will get priced in today.
Economic growth has been strong and official PMI’s were excellent in April. ISM manufacturing will be released today and ISM services will be released Thursday. ADP will post private sector job growth tomorrow and that will be an important number. I am expecting strong results across the board.
I feel that all of the news this week will have a bullish bias. However, the selling pressure has been heavy the last two months. There are many moving parts this week and all it will take is one disappointment to spark selling.
Swing traders should remain on the sidelines. The S&P 500 needs to stay above its 100-day moving average for a few days. We have a long way to go before that happens.
Day traders need to use the first hour range as a guide. Once the momentum is established, go with the flow. If you did this yesterday you did well.
The Iranian news will weigh on the market this morning. Look for a drift lower and a tight range the rest of the day. A good number from Apple and a solid jobs report from ADP will set a positive tone heading into the FOMC statement tomorrow afternoon.
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