Yesterday the market tried to challenge the all-time high and it was not able to punch through resistance. Trading volume is extremely light and we are in a news vacuum for the next two weeks. I believe the upside rewards are smaller than the downside risks and those who want to capture the last leg of this rally should do so on a day trading basis.

The economic releases are minor. Retail sales increased 1.2% and the forecast was for a 2% increase. That is light given that we were supposed to see pent up demand at this stage of the recovery.

China’s retail sales decreased 1.1% and a rise was expected. Industrial output rose 4.8% and that was also a little light. These numbers are little concerning given that China reopened its economy in April. The US and China will hold trade talks this weekend. I’m not expecting any major changes and China has shifted some of its agricultural purchases from Brazil to the US. They are still far short from fulfilling the Phase 1 agreement, but the Coronavirus has had an impact. Energy demand globally is way down and that was one of the large imports that China was going to be making from the US. There is increasing tension between the two countries and communication is usually beneficial for everyone.

Earnings season has almost ended and profits were down 30.5% on average. Investors are expecting a robust recovery in Q3 and I don’t believe they will get one. The resurgence of the Coronavirus is weighing on consumption.

Congress has thrown in the towel on a stimulus deal and politicians are in recess until Labor Day. Many small businesses will have to lay off workers as the PPP stimulus ends. I will be closely watching weekly initial jobless claims. They fell below 1 million for the first time in five months this week, but this is still a very high number and it is not consistent with an economic rebound.

Swing traders who can’t watch the market during the day should stay in cash. Light volume rallies are vulnerable to profit-taking and they are a sign that buyers have a low level of conviction. I believe we will have a better entry point in the next few weeks. While it’s possible that the market can tread water during that time, it is also possible that profit-taking sets in. Investors will get nervous if economic releases are “soft” especially when a stimulus bill is nowhere in sight.

Day traders should remain flexible. Look for intraday ranges and opportunities to trade reversals at the extremes. We are finding excellent candidates on both sides of the market using Option Stalker searches. I prefer to wait for dips and to buy stocks with relative strength on support. I also want to see heavy volume, breakouts on a daily chart and stocks that are above the prior day’s high. I’m trading half of my normal size in the morning and a quarter of my normal size in the afternoon. It’s unlikely given the overnight economic news, but if we get a breakout through SPY $338.30 we could have some excellent option lottery trades today. The all-time high is within striking distance.

Keep it small.