One More Push Higher – Take Profits On Bullish Trades Before FOMC
Last Monday and Tuesday the market surged and we had the best two days since November. The S&P 500 is within striking distance of the all-time high and we could challenge it this week. Good news is priced in and resistance at the all-time high will be stiff.
Tech giants posted earnings after the close last Thursday (GOOG, AMZN, MAFT and INTC) and the market was able to hold its gains. Apple will announce Tuesday after the close and Facebook will announce after the close on Wednesday. I believe that we will see if a rotation out of tech later this week. Earnings season has been good and guidance has been decent.
Q1 GDP came in light last Friday but analysts are looking for good growth in Q2. ISM manufacturing will be released thirty minutes after the open and analysts are looking for small pullback. China’s PMI’s were soft. I am looking for a good jobs number Friday and an upward adjustment to the March number. In aggregate the economic data has been OK, but not strong enough to justify a June rate hike.
The FOMC statement will be released Wednesday. I’m expecting it to be fairly benign. They will acknowledge the recent soft patch in jobs while leaving a June hike on the table. They want to raise rates and the recent market rally has opened a window of opportunity.
The debt ceiling is going to be raised this morning and a government shutdown will be avoided. This was largely expected and we are getting a little “relief rally” this morning. The healthcare bill will struggle to get through the House and once it does it will be shot down in the Senate. This will delay Trump’s tax reform and investors will grow impatient.
The market has a little more gas in the tank and Apple/Facebook could fuel us to the all-time high. The prospect a June rate hike, the possibility a small economic soft patch and the likely delay in tax reform will weigh on the market.
Swing traders should manage profits on bullish put spreads. These positions should be safely out of harm’s way and most of the profits have been realized. I suggest buying back these positions throughout the week and being flat before the FOMC statement. A market pullback will give us an opportunity to reload in a couple of weeks and we need to go back and fill in some of these gaps.
Day traders should be cautious on the open. I believe the early gains may not hold and stocks will probe for support. Many foreign markets were closed so this could be a quiet day of trading. I’m going to trim my size and I will try to buy a bounce if support holds.
Look for one final push higher this week.
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