Market Feels Heavy – Weakness Will Run It Course Soon – Bid Will Grow
The market feels heavy and we are seeing two-sided price action. There are plenty of positives and negatives. Volatility will increase during the next two months and the volume will be brisk.
Earnings season will begin this week and that is a positive. Corporate profits were strong in Q4 and guidance was excellent. Pre-announcement earnings warnings should be minimal and buyers will stay engaged for the next few weeks.
Global economic growth has been improving. Official PMI’s were better-than-expected in Europe and Asia. Domestic economic activity has also been strong. Last week ISM services declined. I’m not overly concerned because readings above 57 are difficult to maintain. Friday’s jobs report (98,000) was disappointing. However, I don’t trust the government’s number. ADP showed that 293,000 jobs were created in the private sector during the month of March and I believe that is accurate. ADP processes payrolls for small and medium-size businesses and they have their finger on the pulse. I still believe that economic growth is solid.
The Fed has an aggressive agenda. They plan to raise rates two more times this year and investors will worry that economic growth is not strong enough to shoulder these moves. Central banks (ECB and PBOC) are also suggesting that QE will end. This is a stiff headwind for the market and any economic “soft patch” will spark selling.
Trump’s honeymoon has ended and investors are growing impatient. The healthcare bill never made it to vote and that was a warning. Tax reform is on the front burner and Republicans need to score points quickly. If we don’t see a tax cut this summer the market will decline. There should be some low hanging fruit that both parties can agree on.
Swing traders need to keep their powder dry. On the next drop there will be some opportunities to sell out of the money bullish put spreads on stocks that have reported solid earnings. Financials are of particular interest. The backdrop seems good for this sector and Wells Fargo and JP Morgan Chase will report Thursday. These stocks have dropped to major support levels and we can lean on major moving averages when we sell our put credit spreads.
Day traders should wait for the first move this morning – we could go either way. Once the direction is established I can gauge the strength of the move. Then I will know if I want to join it or fade it. The Market Rating in our chat room has accurately predicted upcoming moves so I will lean on that.
Oil is trading higher before the open and financials have a bid. We need both if the market is going to move higher.
This is a holiday shortened week so the action could drop off.
Keep your size relatively small this week. Ideally we will get a nice little drop and will have an opportunity to gauge support (SPY $234.50 and $231.50).
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