Nice Earnings Rally – Good News Is Priced In and Headwinds Will Blow
Yesterday the market shot higher after the French election results. Stocks were able to hold gains throughout the day and that is a positive sign. Earnings season is in high gear and Thursday will be a very important day.
For the time being the focus is on profits. Earnings have been strong and the overnight results were generally positive. Stocks are poised for a higher open and the SPY will open above minor resistance at $237.20. That is a support level we can lean on today. As long as the market is above it, trade from the long side.
After the close Thursday we will hear from Google, Bidu, Amazon, Intel and Microsoft. These mega cap tech giants will set the tone. QQQ has already broken out to a new all-time high and I suggest focusing on tech stocks.
Economic conditions are strong globally. We need this to stay intact because central banks are tightening. As long as activity is robust the market will shoulder future rate hikes. Any speed bump will spark profit-taking.
President Trump will discuss his tax reform policy in a press conference tomorrow. We can expect lots of superlatives. Investors are starting to question whether he will be able to execute his game plan. The debt ceiling will be reached on Friday and he seems willing to skip funding for the wall to get this done. The political news this week should be market friendly.
Swing traders should be benefiting from time decay on bullish put spreads. The rally yesterday gave us some nice breathing room and time will eat away at these positions. I’m not looking for a massive rally and a breakout to a new high so I’m not buying overnight calls. I believe the market will hit stiff resistance at the all-time high and it won’t push through unless the tax cut is passed.
Day traders need to be careful on the open. Make sure that SPY $237.20 support holds. I would like to get long if we challenge that level and it holds. Focus on tech stocks.
Yesterday the market shot higher and it traded in a very tight range the rest of the day. We might see a similar pattern today. Ideally we will get a small pullback early and that will give us a nice entry point with good upside. If the market trades in a tight range today I will keep my trading to a minimal. This rally still feels a little “fluffy” to me.
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