Market Speedbump This Week – Make Sure You Are Using Intraday Stops
Posted by Pete Stolcers on September 24
Posted 9:30 AM ET – The S&P 500 made a new all-time high last week, but the momentum is poor. Stocks have taken three steps forwards and two steps backwards while issues are resolved. The FOMC will hike rates this Wednesday and I believe the rhetoric will be neutral at best. Conditions could change rapidly and intraday stops are a must.
Wage inflation will keep the Fed in tightening mode. As long as the market is moving higher, they will hike rates. As yields move higher it will become more expensive for emerging markets to borrow money and the threat of a credit crisis will increase. Italy, Argentina, Pakistan, Turkey and many other countries are experiencing currency devaluation. This is a longer-term threat for this rally.
China and the US are inching closer to a full-blown trade war. China will not facilitate Trump’s agenda by signing a deal before the November elections. They would prefer that Democrats take the house and stall his momentum.
Canada is being pressured to sign a deal by the end of the month. The US has an agreement with Mexico and NAFTA will expire soon.
Trade negotiations with Europe are ongoing, but don’t expect any results. The EU has been negotiating Brexit for over a year and they still can’t reach an agreement.
Domestic economic growth is strong. Initial jobless claims fell to their lowest level in decades last week. The Atlanta Federal Reserve believes that GDP will be 4.4% and that number will be released Friday.
The November elections are right around the corner. Polls suggest that Democrats will take the House. If this happens the market will not like the news. Trump’s agenda has been good for the market.
Iran will start naval maneuvers ahead of the November sanctions. They have threatened to shut down the Strait of Hormuz.
Record corporate profits are fueling this rally. At a forward P/E of 16, valuations are reasonable.
Swing traders should use an intraday stop of SPY $290. That is close to our entry point. I believe the market has completely discounted potential speed bumps and stocks need to retrace before they can move higher. The best year-end rallies follow drops in September. Buyers scoop stocks and the momentum slingshots the market to new highs. When we do not have a dip in September the year-end rally tends to be muted. I believe we will gradually inch higher the rest of the year and the current pattern (three steps forwards and two steps backwards) will remain. I hope I am wrong and I would really like to see a 5% correction.
Day traders should favor the short side early today. The market gradually drifted lower Friday and overseas markets were soft. After the first hour of trading, use that range as your guide. If we are above the first hour high, favor the long side. If we are below the low, favor the short side. I am almost exclusively day trading an my overnight exposure is minimal.
The FOMC could provide a speed bump this week. A pullback to SPY $287 would provide a good buying opportunity.
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