Daily Commentary: 1Option

eOption1Option Commentary

Earnings After Close Need To Be Incredible For New SPY High

In yesterday’s comments I mentioned that stocks were likely to pullback after Trump’s press conference. His content was good, but the early gains were erased. After the biggest two day rally since November the market needed a breather. Earnings after the close today will be critical.

Google, Amazon, Intel and Microsoft posts results after the closing bell. These mega cap tech stocks are heavily weighted in major indices and they are a barometer for the tech sector. All of them are at the high-end of the range and good news is priced in. The QQQ has been making new all-time highs for a few days. Once these companies report we could see profit-taking.

It’s unusual for the market to gap higher and to take out the all-time high without “backfilling” those gaps. The news has generally been good, but not earth shattering.

Trump revealed his tax cut plan and the news had already been leaked. This is an aggressive proposal and it will hit stiff resistance on the left and the far right. He still wants to push through a healthcare bill and that will delay the tax cuts. Republicans have redrafted the healthcare bill and they have support from the Freedom Caucus. The House could vote on it as soon as Friday. Unfortunately, even if it passes the House it will not get through the Senate.

The debt ceiling will be extended. Trump has exchanged a wall budget for increased defense funding and more money for border patrol. All told, this is been a good week for the president. No one expected a government shutdown so this was not priced into the market. However, every time it gets extended there is a “feel-good” rally. After the big gains this week we might not see much of one.

Q1 GDP will be posted tomorrow and analysts are expecting a number under 1%. Given the Fed’s tightening agenda this number will raise some concerns. The focus is on strong growth in Q2, but current weakness could result in nervous jitters.

The market staged a huge rally this week. I believe the move is over-extended and resistance at the all-time high will be stiff. The earnings after the close will be good enough to get us to an all-time high, but not good enough to break us out.

Stocks are likely to tread water at this level for a couple of weeks. Then I’m looking for a gradual retracement. Those gaps need to be filled. A couple of soft economic numbers and more mudslinging in DC is all it will take to spark profit-taking. A hawkish statement from a Fed official would also do it. The energy sector and financial sector need to participate if we are going to make a new high. Both are sluggish.

Swing traders should “milk” their profits on out of the money bullish put spreads. While the market treads water at this level time decay will work its magic. Protect profits. When the market pulls back in a couple of weeks we will have another opportunity to sell out of the money bullish put spreads.

Day traders should look for a choppy day today. The momentum points higher and there will be some optimism ahead of major earnings releases. Take your cue from financial stocks. If they are grinding higher the market has a chance to rally. Resistance is at $239.50 and support is at $238. I believe we will stay in that range today.

A new all-time high tomorrow is only possible if all four companies blow the doors off of estimates.

Market commentary provided by OneOption, LLC a firm separate from and not affiliated with Regal Securities L.P. Regal Securities L.P. has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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