Swing Traders Stay In Cash – Day Traders Use SPY $240 As Your Guide
Yesterday the market rallied in the first 30 minutes of trading and it flat lined the rest of the day. The S&P 500 had a two-point range and the volume was anemic. Stocks are poised to open a little higher this morning and the SPY is at the all-time high. The market could grind higher today, but I don’t trust this rally.
There are plenty of potential landmines ahead in the next month and I believe any surprise favors the downside. Bullish speculators will pile into this breakout and they risk having the door slammed in their face.
It’s tempting to try and milk the last drop out of this rally, but experience tells me to be patient. Even if this move is legitimate, there will be a retracement and we will be able to enter when the breakout is tested.
Earnings season is over and good news is priced in.
Economic conditions are stable, but growth is moderating.
The Fed is going to hike in June and we are likely to see profit-taking as that meeting draws closer.
Political mudslinging continues and tax cuts will be delayed.
Swing traders should wait patiently for a pullback. The market needs to fill-in some of the recent gaps and when it does so there will be an opportunity to get long. If you want to have some positions on, sell out of the money bullish put spreads on energy stocks.
Day traders can trade from the long side as long as the SPY is above $240. If we fall below it favor the short side. If the market makes a new high after two hours of trading it could grind higher. You can be a little more aggressive with your longs if that happens. Tech is still strong. I would discourage carrying overnight long positions.
I know that there’s a good chance the market will grind higher and that I will look like a fool for telling swing traders to stay in cash. The path of least resistance points higher and momentum will push us higher during this news vacuum. This move is going to lure bullish speculators in and they are likely to feel good for a few days. When profit-taking surfaces it will come quickly and they will be faced with losses.
Getting long at this level is a suckers bet. Energy and financials stocks are not participating and I will not change my bias until they do. The last leg of this rally has been narrowly confined to tech stocks. Asset Managers are selling US stocks ($22B outflow in April).
If you are a day trader, there is room to make money on the long side. Look for very quiet conditions and set passive targets if we can’t get above the first hour high.
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