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Posted by Pete Stolcers on May 14

Posted 9:30 AM ET – Two weeks ago the S&P 500 bounced off of the 200-day moving average and the momentum from that reversal pushed the index through the 100-day moving average last week. The political winds have temporarily subsided, but conditions could change rapidly. Buyers are little more aggressive than they were in March and support at SPY will solidify if we can close above it this week.

A trade war with China is the greatest threat. Negotiations will continue in the US this week and the mudslinging has ended. China was instrumental in getting Kim Jong Un to the table and that has greased the negotiation wheels. The meeting with North Korea will take place in one month and that should keep the tone positive. If it sours the market will tank and the 200-day moving average will be tested in short order. It is important to have intraday stops in place.

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Trade negotiations with Europe will be much more challenging. Trump is threatening to sanction European companies that do business with Iran. Furthermore, the EU is fragmented and it will be much more difficult to find middle ground since tariffs will impact some countries more than others. The deadlines are likely to be extended since the Iran sanctions are just starting.

NAFTA is ready to be signed; Mexico just has to commit to securing their side of the border. I don’t believe Trump will budge on this. He does not have “the wall” and until it is built he needs Mexico’s help.

The market is reacting to every political statement and one wrong word could spark selling.

Forward P/E ratios are little high, but earnings have been fantastic. Another quarter of excellent performance will attract buyers. Time is the key and stocks are growing into valuations.

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Economic activity has been strong on a global basis and inflation is moderate. As long as this trend continues the market will shoulder two Fed rate hikes this year.

Trade negotiations will determine market direction this summer. If the talks go well we will make a new all-time high. If the talks go poorly we will fall below the 200-day moving average. Trump is unpredictable and he said that investors should prepare for increased volatility. He doesn’t care about the market, he wants to negotiate good deals. I feel that the pendulum could swing either way.

Swing traders are long QQQ at $164.60. Raise your stops on an intraday basis to $167.50. Aggressive swing traders also bought the SPY when it closed above the 100-day moving average ($272).. Use that level as your stop on an intraday basis. As the market continues to climb we will keep raising our stop.

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Day traders should let the early action unfold. Wait for momentum and use the first hour range as your guide. The market has been able to close above the 100-day MA for a few days and I would favor the long side. No news is good news for the market. Trade negotiations continue behind closed doors and stocks will try to grind higher in the absence of inflammatory tweets. Watch your newsfeeds and be prepared to get short if the rug gets pulled out from under this rally.
Watch for a tenuous rally this week.
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