Slow Start To 2018 – Debt Ceiling Will Keep A Lid On the Market
POSTED BY PETE STOLCERS ON JANUARY 2
Posted 9:30 AM ET – Happy New Year. The tax bill is signed and the debt ceiling/budget will be negotiated in the next two weeks. Democrats will flex their muscles and this could be an ugly battle. This is likely to come down to the wire and the market won’t like the uncertainty. After a 20% run last year I believe we will see some profit-taking in the next couple of weeks.
Friday the market took a nasty spill in the last hour of trading. I don’t trust the opening rally this morning and I believe the downside will be tested.
Trump has escalated his rhetoric with China after discovering oil deliveries to North Korea. This could spark a trade war.
Good news is priced in and resistance will be stiff at the all-time high. Economic growth is stable, but it will take a few months for the tax cuts to boost consumption.
Earnings season is only a few weeks away and that will keep buyers engaged. The results should be excellent. Corporate taxes will not decrease for another year, but profits are strong without that benefit. In anticipation of the tax cuts corporations will start investing in plant and equipment.
Swing traders need to patiently wait for a market pullback. A drop down to SPY $260 would present a buying opportunity. At these lofty levels the upside reward is smaller than the downside risk.
Day traders should look for an opportunity to short the opening rally. If the market opens on the high and steadily ticks lower in the first 15 minutes we are likely to see a reversal. Tech stocks have been particularly weak. The QQQ was up 35% last year and it is vulnerable to profit-taking.
I’m looking for a soft start to 2018 and political news will drive the action. After January the market will focus more on economic growth. During the year we will return to a more traditional trading pattern where growth (not politics) is the driver. The political news will not be important until the November midterm elections.
Be patient these first few days. Historically they determine how the rest of the month and the rest of the year will play out.
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