The S&P 500 is at all-time highs as earnings season peaks. There is still some gas left in the tank. Earnings have been excellent and extreme valuations have not deterred buyers.

Q3 2021 S&P 500 Snapshot Highlights
•S&P 500’s 3rd quarter growth is 31.75% compared to 24.35% a month ago.
•Financials was trending up to 29.66% from 12.31% a month ago.
•Real Estate was trending up to 79.85% from 65.77% a month ago.
84.3% of companies reported have beaten EPS Estimates and 78.3% of companies reported have beaten Revenue estimates, while 66.3% have beaten both EPS and Revenue.

Inflation is rising and with the Fed remaining accommodative that pushes real returns (yields minus inflation) further into negative territory. That is fueling the rally and that could change during the FOMC meeting Wednesday when the Fed outlines its tapering timeline.

Reasons to be bullish:

1.Interest rates are not keeping pace with inflation (negative real returns) so investors see stocks as an attractive investment alternative.
2.Corporate buy backs are steady.
3.The long term trend is up and the market formed a base at the 100-day MA.
4.We are heading into a seasonally strong period.

Reasons to be bearish:

1.Stock valuations have not been this high since the 2000 tech bubble.
2.The Fed may start tapering in November.
3.Hourly wages are rising quickly and this will bite into profit margins.
4.Raw material costs are rising quickly and that is inflationary.
5.Global economic growth is sluggish because of supply disruptions.
6.Electricity is being rationed around the globe due to energy supply issues.
7.China is seeing a rise in corporate defaults. This could spark credit concerns.
8.Analysts are downgrading earnings expectations at a fast clip.
9.This was the heaviest selling we have seen in a year.

Over the weekend we learned that China’s PMI fell further into contraction territory to its lowest level since March 2020 (the climax of their Covid-19 shutdown). Aren’t we supposed to be clicking on all cylinders at this stage? China is the barometer for economic activity and I view this as a warning sign.

After the open ISM manufacturing will be released. ISM services and ADP will be posted Wednesday and the Unemployment Report will be posted Friday. This is a busy week for economic releases.

Swing traders should wait for the FOMC reaction this week. I am expecting sideways action for the next two days. Sell bullish put spreads on any weakness. The market is seasonally strong in November and December and I am expecting the bid to remain strong.

Day traders need to look for two-sided action. There have been nice opportunities on both sides of the market. I don’t expect to see any monster bullish trend days like we had last week. Set passive targets and know that the market will reverse when the current momentum runs out of steam. Buying dips once support has been established is the best day trading approach because you can join the longer term market uptrend. The action will die down ahead of the FOMC so look for tight trading ranges. Reduce your trade count and size.

Do not chase opening gaps at an all-time high. They have been faded most of the time.

Support is at SPY $454 and $458. Resistance is at $470.