Good News Is Priced In – Look For Profit Taking After Trump’s Speech Today
Yesterday the market shot higher and the Dow posted its largest two-day gain since November. Rumor has it that a hedge fund was caught short and they were squeezed. That might’ve contributed to the move, but good earnings and Trump’s tax reform speech today provided most of the fuel. The SPY is within striking distance of the all-time high and the QQQ has broken out.
Earnings have been excellent and they will climax in the next two days. Google, Bidu, Amazon, Intel and Microsoft will post after the close tomorrow. This could push us through the all-time high.
Trump’s speech today is already priced into the market. I feel that there could be some letdown after the news. We can expect grandiose statements, but he will struggle to get major tax cuts approved. Democrats won’t support anything he proposes and the conservative right doesn’t want to increase budget deficits. Tax reform is all the market cares about and Trump still wants to see if he can get a healthcare plan approved. This will delay the tax cuts and investors will grow impatient.
The debt ceiling is likely to be extended. Trump won’t get funding for the wall, but the defense budget and border patrol will increase. No one expected the government shutdown, but the news could spark a little bit of a relief rally.
Global economic growth is strong. Friday we will get the first look at Q1 GDP. Analysts are calling for a light number, but they are willing to look past it. Growth is on the rise and Q2 could exceed 3% growth.
The Fed has an aggressive tightening agenda. Although they will deny it, I believe they watch the market very closely. This rally will give them the cushion they need to hike rates in June.
Swing traders should start taking profits on bullish put spreads. We will watch the price action during the next week. If the market breaks out to an all-time high we will scale into call positions. If resistance holds we will wait. There are many crosscurrents and from my perspective good news is priced in.
Day traders should look for an early rally that stalls. After Trump’s speech we could see a little buying, but once that move is exhausted profit-taking will surface. I plan to favor the short side this afternoon. I’m not overly bearish; I just feel that the massive rally the last two days is a bit over-extended. If I’m wrong and we blow through the closing high ($240.32) I will join the party and I will use that level as my stop.
This is a critical juncture and it is a busy news week. Let’s see if the market can breakout.
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