Posted by Pete Stolcers on July 23
Posted 9:30 AM ET – The market is compressing near its all-time high and trade war concerns are keeping a lid on it. Strong earnings will be too much to resist this week and I am expecting a breakout. Under allocated Asset Managers will scramble to buy stocks if we breakout.
One third of the S&P 500 will report this week. That includes Amazon, Google, Facebook and Intel. Of the companies that have reported, 87% have exceeded earnings estimates and profit growth has been 21% year-over-year. These are incredible numbers and stocks are reasonably priced at a forward P/E of 16.
Will Trump’s trade policies dismantle all of this? I believe that he will find trading partners who want to negotiate. When a few deals have been signed other trading partners will make concessions. Perhaps Mexico will be the first. Their new president said that he wants to improve relations with the US and that includes trade deals.
England is also embroiled in trade negotiations with the EU as it prepares for Brexit. The WTO is concerned that they will not be able to keep up with all of the global changes.
Trump said that he would sign any agreement for free trade with any country. That means zero tariffs will and subsidies. That is ultimately what he wants and this is his way of applying pressure.
The November elections are approaching quickly and Trump needs to maintain his popularity if the GOP is going to control Congress. A swift market correction would derail that and it’s a risk he can’t take. A handful of minor trade deals would calm investors at this juncture.
Economic growth is strong and Q2 GDP will be released Friday. Many analysts are expecting growth to exceed 4%. That would be the highest level we’ve seen in almost 20 years.
This week the “rubber meets the road”. If strong earnings don’t lead to a market breakout we could see a retracement in August.
Swing traders should be long QQQ and SPY. Use $177 and $278 as your stop on a closing basis. Prices should firm up Tuesday and I am expecting a breakout towards the end of the week.
Day traders should let the early jitters dissipate. Overseas markets were soft and we will probe for support early in the day. Look for opportunities to get long. If the SPY is above $280 you can get more aggressive and you should use that level as your stop.
This is the week when we find out if strong earnings can overpower trade war concerns.
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