Get Long and Wait For the Breakout – Buyers Will Return After Labor Day
Posted 9:30 AM ET Aug 24th – ***Note: There will be no market comments posted from August 27 through August 31.*** The summer doldrums will continue through Labor Day. We are in a news vacuum and the market needs a material event to push us through the all-time high. The breakout is not as important as the follow-through. We can expect a few mini breakouts and these head-fakes will stall next week. Trading volume is low and it will decline next week.
A handshake trade agreement with Mexico is expected in the next two weeks. That would be market friendly, but not enough to fuel a major rally. We need specifics. Trade talks with Europe are ongoing and low-level negotiations with China did not bear any fruit this week. I’m not expecting a deal with Xi before the mid-term elections.
The FOMC minutes did not spark a move this week and I doubt Powell’s comments in Jackson Hole today will reveal anything new. The Fed plans to hike in September and the market is comfortable with their hawkish agenda.
Economic growth has been strong and inflation is moderate.
Earnings season has ended and the results have been fantastic. Profits grew 25% in Q2 compared to a year ago. Stock valuations are reasonable.
The market has been inching closer and closer to the all-time high. Under-allocated Asset Managers are buying dips and we are likely to see a breakout when normal volume returns in two weeks.
Swing traders are long a half position of SPY and we will buy the other half at $280 or $287 (whichever comes first). I would prefer to buy a dip, but I don’t want to miss a breakout. We will hold the position without a stop.
Day traders should keep their size small and reduce their trade count. Take profits early. Know that the market does not have a “driver” and that sustained moves are unlikely. Opening rallies will look great and the market will feel like it is going to lift off. As soon as the move stalls you can expect a pullback. If the market opens higher, find relative strength and ride it as long as you can. When the momentum stalls, short stocks with relative weakness. When the market retraces take profits on your shorts and look for opportunities to reload your longs. You will see back-and-forth action next week. Be nimble and keep your trading to a minimum. This a low probability trading environment.
In the next few weeks I’m expecting a nice market breakout with volume. That will be a move we can sink our teeth into and we should see follow-through. I believe it will take an actual trade deal (not a rumor and not a handshake) to attract buyers.
I will NOT be posting market comments from August 27 through August 31. There will not be much to report.
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