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Posted by Pete Stolcers on August 2

Posted 9:20 AM ET – The last of the mega cap tech stocks has reported. Apple posted a great number and the stock is up 6% after the release. Tech stocks are poised to open higher, but the S&P 500 is barely in positive territory. We are in the final stages of this rally.

Yesterday I provided some earnings statistics. In short profits are up a healthy 9% and valuations are not stretched. Once the tech giants have posted results the excitement wanes. We are more than halfway through Q2 earnings season and the releases will taper off. The strongest companies report early in the cycle.

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Major economic news will keep traders engaged this week. ISM manufacturing was in line yesterday and ADP (178K) was a little light this morning. ISM services will be posted tomorrow and the jobs report will be posted Friday. I’m expecting results that are consistent with moderate growth. The next significant economic releases are weeks away.

The Fed is in recess. A week ago the FOMC statement was hawkish and analysts are expecting another rate hike in December. The Fed plans to reduce its balance sheet starting in September (another form of tightening).

Politicians are in recess. The healthcare bill and tax reform are in limbo. When DC returns in September the debt ceiling will be upon us.

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There won’t be any news to drive the market for the next few weeks. Investors typically get nervous when everything is on “autopilot”. I expect to see a compression at the all-time high during the next couple of weeks. Then I expect a round of profit-taking towards the end of August.

Swing traders need to wait patiently on the sidelines. We will see a series of small wiggles and jiggles, but there won’t be any follow-through. Trading volume will drop to its lowest levels of the year. Don’t contemplate selling bullish put spreads until we get a pullback. Option premiums are dirt cheap and one small move could spell disaster for premium sellers. This is a very low probability trading environment.

Day traders will have a few more good days of trading. Yesterday the S&P 500 was trapped in a 1.5 point range for the last four hours. We can expect more of this in coming weeks. Tech stocks will surge higher on the open, but I don’t trust this move. Good news is priced in and I will be looking for shorting opportunities. Last Thursday we saw a nasty reversal off of a big gap higher on the QQQ. The S&P 500 is up two points and it is not participating in the early rally. If the market is able to hold gains I will trade from the long side and I will focus on non-tech sectors that are strong. Support is at SPY $246 and resistance is at $248. Use the first hour range as your guide.

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Try to make a little money this week and prepare for a dry spell. Most traders take the first two weeks of August off and I suggest that you do the same.
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