Yesterday the S&P 500 surged to a new all-time high and it was able to preserve the opening gap higher. That was a fairly bullish sign since these moves often produce intraday reversals like we saw on November 9th. The price action is a little soft overnight and we can expect profit-taking with the S&P 500 trading at a P/E of 40. I’ve been saying for weeks that this will be a gradual grind higher fueled by seasonal strength.

This is a big week for economic releases and ISM manufacturing was strong yesterday (57.5). Before the open, ADP reported that private payrolls only increased 307,000 during the month of November and that was considerably less than the 380,000 jobs that were expected. Last week we saw initial jobless claims tick higher and these trends do not bode well for Friday’s Unemployment Report. States are shutting down due to the Coronavirus and that will start to bear out in the data points. ISM services will be released tomorrow.

The Fed has done all it can and it will not raise interest rates for at least a year. Janet Yellen was selected as Biden’s Treasury Secretary and the market likes her dovish posture. It’s time for fiscal spending to take the reins.

Mitch McConnell rejected a $900 billion bipartisan stimulus bill yesterday. Politicians have been missing in action since the election, but at least they are talking now. Steve Mnuchin and Nancy Pelosi are scheduled to meet today. The stimulus bill needs to happen soon or the market will fire a warning shot to motivate politicians.

The Senate runoff in Georgia is the next major market event. It will take place in the middle of January and if Republicans win one of the two seats they will retain control. That would likely preserve the Trump tax cuts and it would be a market friendly outcome.

The S&P 500 is trading at a current P/E of 40 and that is rich by any historical standards. Vaccines will be distributed in Q1 and we can expect some pent-up demand as the economy gradually recovers. It will take a long time for profits to catch up to valuations and we can expect profit-taking when the market gets over-extended.

Swing traders are long a half position of SPY at $360. Place a stop at $362 (closing basis). We continue to sell out of the money bullish put spreads on strong stocks with relative strength, heavy volume and technical breakouts. We are distancing ourselves from the action and that provides us with cushion during market pullbacks. Accelerated time decay is constantly working in our favor since the spreads expire in three weeks or less. I don’t see changing this strategy in the near future and it has been an incredibly profitable year for us. Tonight I will post new trades in my Weekly Swing Trading Video.

Day traders should watch for early selling. The S&P 500 is slated to open below yesterday’s low of the day so we are likely to fill in some of that gap. Let the market come in and spend the first hour finding stocks with relative strength. Once the market finds support you can buy with confidence. Use the 1OP indicator on a five minute basis as you guide. If by chance the market makes a new low for the day after two hours of trading, favor the short side. I don’t believe this will happen, but prolonged selling pressure has triggered sell programs off of these new highs in the past. I like trading down opens in an uptrend. Heavy Buying, Relative Strength 30 and Bull Run will be my go to searches in Option Stalker.

Support is at SPY $364 and $359. Resistance is at $365 and $367.70.