Posted by Pete Stolcers on August 9
Posted 9:30 AM ET – The news is light and that favors the upward momentum. Major indices are clearly through resistance and they are within striking distance of the all-time high. Trading volume will be low and tight daily ranges will be the norm. Stay long and move your stops higher.
Traders and politicians will take time off the next few weeks. A breakout to new all-time highs could fuel buying as latecomers get anxious. Light volume gains can be quickly stripped away and that is why we only have a half position.
The trade war with China is escalating and both sides won’t budge. The US is negotiating with Japan this week. Trade talks are also taking place in Europe and Mexico.
Earnings have been fantastic and 80% of companies have exceeded estimates. Profits are growing at record levels and valuations are reasonable. This is fueling the rally and it will continue until we see tariff related warnings.
We still have two months before a potential government shutdown and this threat will be discounted until the final hour. Republicans have too much to lose ahead of midterm elections and they will try to pass an immigration bill.
Interest rates will go up in September, but the market has priced that in. Economic growth is strong and inflation is moderate. As long as these two conditions hold true the market will shoulder tightening.
The rally is momentum driven and there are plenty of “spoilers”. That is why we are only taking a half position. Place a buy order at SPY $280 for a half position. We will not have a stop at this time. We will also set a target of SPY $290. If we get a big one day rally we will take profits.
Day traders should focus on the long side. If the market is above the first hour high get a little more aggressive. If the market breaks through the all-time high trade your normal size and hold some positions overnight. I still consider this a low probability trading environment and your size should be smaller until we breakout. Expect nice-looking moves that quickly fizzle. These are the summer doldrums and the price action will be very choppy. Set passive targets and take profits early.
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