Rally Is Almost Out Of Gas – Look For Profit Taking In Tech Next Week
Yesterday the market took a breather ahead of the FOMC statement. The Fed is predicting stronger growth in Q2 and a rate hike in June is likely. Stocks barely budged after the news.
ADP revealed that 177,000 new jobs were created in the private sector during the month of April. That was a little better than expected and we can expect a good jobs report on Friday. I also expect to see upward revisions to March’s employment figures. ISM services came in better than expected and after a brief one month dip it bounced right back. We need strong economic data.
The Fed claims that they are not influenced by the market, but they are. This recent rally has provided a window of opportunity and the Fed will hike rates next month.
Earnings have been strong and guidance is good. The cycle is “front end loaded” and the strongest companies have reported. Earnings releases will have less of an impact from this point forward and the focus will shift back to politics.
Republicans are trying to draft a new healthcare plan and a vote is scheduled today. Even if it gets through the House it will be shot down in the Senate. Any meaningful tax reform can’t take place until a healthcare bill is passed. This will take time and investors will grow impatient.
Tech stocks have run hard and now that the “giants” have reported the excitement will wane. I am expecting some rotation out of tech and into financials. Other sectors need to pick up the slack. Retail had a small bounce yesterday.
Swing traders should be flat. If you followed my advice you bought back your bullish put spreads at a nice profit and you are waiting for a market pullback. I believe we could see one in the next two weeks. Some of the gaps higher will be filled in and another opportunity to sell out of the money bullish put spreads will present itself. I believe the market will trade in a range this summer. Investors want to gauge Trump’s progress and economic growth. If both are good we could see a nice rally this fall. Selling out of the money spreads is a good strategy in this environment.
Day traders should be patient on the open. Make sure the rally holds and use the XLF as your guide. If banks are stable (or strong) the market has a chance to move higher. Oil is down this morning so the energy sector will be weighing on the SPY. Support is at SPY $236.50 and $238. Resistance is at $239 and the all-time high.
I interpreted the Fed’s statement as hawkish and I am favoring the short side for the next week. Mega cap tech stocks have reported and bullish speculators will be flushed out.
Look for a probe lower today. Use the first hour range as your guide. If we are above it, trade from the long side. If we are below it, trade from the short side. The action after the Fed was quiet and this could be a dull day.
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