Earnings Season Will Provide Clarity – Here’s the Key
Posted 9:30 AM ET – The major overnight news did not come from a headline. It is technical in nature. Yesterday stocks sold off early in the day and the market has been feeling “toppy” the last few days. Buyers stepped in early and the market rallied throughout the day. This is a sign that the bid is still strong and the SPY is likely to challenge $262 and might even get to horizontal resistance at $265.
Earnings season kicks off Monday with Citigroup. Chase and Wells Fargo report on Tuesday. Guidance and the reactions to the news will determine market direction. Bad news is expected and we could see relief rallies if guidance is steady. At a forward P/E of 14.5, stocks are reasonably priced.
Trade talks in China concluded and vice premier Liu will “most likely” visit Washington later in January. The talks have been described as a “cordial standoff”. This process will take months to resolve and it could swing either way. In the meantime, China’s economy continues to slip and they lowered growth forecasts for 2019.
The government shutdown is not having a material market impact. More than three quarters of the agencies have been funded. Trump is firm on wall funding and this also sends a message to China and other trade partners that he is a tough negotiator.
Fed speak yesterday was deemed dovish. Powell said that they have the latitude to postpone future rate hikes. However, the Fed’s balance sheet will be considerably smaller.
Swing traders are sidelined and we took profits yesterday. The market has bounced and we are due for some price consolidation. Gains will be hard-fought from this point forward and we will wait for clarity. Earnings season will help.
Day traders should wait for support today. The bid is still strong and I am expecting a rally off of the lows. Support is at $255 and resistance is at $261.60 $263.40 (50-day MA). The action has been very choppy and buyers and sellers are in a tug-of-war. Without and major news, compression around this level is very possible.
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