Posted by Pete Stolcers on April 17
Posted 9:30 AM ET – Yesterday the market gapped higher and it was able to hold the gains. Many of these moves have been faded recently and nasty reversals have resulted. I viewed the price action Monday as constructive. Earnings season will ramp up and profits will calm nerves. The S&P 500 is up 16 points before the open and it will trade above the 50-Day MA.
Netflix reported excellent results after the close Monday. Investors have been wondering if lofty valuations will hold in a market filled with uncertainty. For the time being the answer is yes. Tech stocks are strong this morning.
Market conditions have changed and we need to trade in a shorter time horizon. I am only going to look two weeks out. In that time I don’t believe our involvement in Syria will escalate. Trump’s attorney (Cohen) will review seized documents during the FBI raid and attorney/client privileges will keep investigators at bay for the next two weeks. North Korea wants to meet and I don’t believe there will be any missile testing. Tariff rhetoric between China and the US has calmed down and both sides want to avoid a trade war. Political noise has been keeping investors on edge and we might get a short break.
The FOMC will meet the first week of May and interest rate worries should be subdued for the next two weeks. There is some “Fed Speak” Wednesday and Thursday.
Economic releases have been strong. Retail sales grew better-than-expected (.6%) and consumers are spending.
The focus during the next two weeks will be on profits. Earnings are expected to grow more than 18% in Q1. This should keep buyers engaged.
Swing traders should be long XLF and XLE. Financial stocks have been reporting excellent earnings and Congress is trying to repeal Frank/Dodd. Less regulation would be good for this sector. Interest rates are rising and job growth is strong. Use the 200-day moving average as a stop on a closing basis. We have nice profits in XLE. Use the 100-day moving average as a stop on a closing basis. I believe the market will try to grind higher the rest of the month. My longer-term bias is neutral and I’m not looking for a runaway rally.
Day traders need to be cautious on the open. Make sure the gap higher holds. Buyers will be passive early in the day and they will gauge the selling pressure. If the bid is strong they will get more aggressive through the course of the day and we will see a grind higher. Use the 50-day MA as a guide. If we are above it favor the long side and if we are below it favor the short side. I will be more focused on the long side.
Any market bounce will be tenuous. The price action has been very nervous and the recent selling pressure is a warning sign. As I mentioned earlier my window is only two weeks out. All of the conditions I mentioned could change quickly, but I believe we will have a short reprieve.
Look for opportunities to get long and use stops.
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