Posted by Pete Stolcers on April 21
Posted 9:20 AM ET – Yesterday the market treaded cautiously for the first hour. The opening gains held and buyers started to nibble. Once the S&P 500 made a new high for the day we were off to the races. The market finished above the 50-day moving average and the bid looks solid this morning.
In my comments Wednesday morning I told you the market would challenge the 50-day high. I looked pretty foolish for day, but I was right. If the market was not able to rally during the start of earnings season a giant warning shot would have been fired. The strongest companies announce early in the cycle and that typically attracts buyers.
For the last week I’ve told you to keep an eye on financials. They are the key to a market rally and they flew higher yesterday. Banks have been beaten down and they have room to run.
The political winds are swirling domestically and internationally. On the home front Trump still wants to pass a healthcare bill. This will postpone tax reform and investors are growing impatient. We will hit the debt ceiling next week, but this is not a big concern since Republicans control the House, Senate and White House. On an international front, tensions with Russia, North Korea and Iran are high. Our allies are supporting Trump’s actions but there is a lot of uncertainty.
Economic growth is very solid. I don’t trust the jobs report and I believe it will be revised higher. ADP was very strong (293,000) and I trust that number. ISM services had maintained a very lofty level above 57 and it pullback slightly. All of the other economic releases have been good (China’s GDP, China’s retail sales, China’s industrial production and the Beige Book). This morning we learned that global flash PMI’s were better than expected.
If global economic strength is intact the market can shoulder additional rate hikes. The Fed has an aggressive agenda and any speed bump will spark profit-taking.
Swing traders should be selling out of the money put credit spreads. If you’ve been following my advice your spreads are making money. Continue to use this strategy. You can distance yourself from the action and take advantage of time decay. I’m not looking for a massive rally, but market support should hold for at least a couple of weeks. When financial stocks caught a bid yesterday you should have put some trades on.
Day traders that followed my advice yesterday did well. In the chat room we jumped on the rally once the first hour high was breached. Financials were strong and stocks never looked back. Today we can expect choppy trading early in the day and the bid should firm up after the first hour. Focus on tech stocks. They have been leading the charge. Financials also deserve a look. Use the 50-day MA as your guide. As long as we are above it, trade from the long side.
Earnings season will peak next week and we will hear from mega cap tech stocks. The price action will be choppy with an upward bias through April.
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