I Told You To Take Profits Friday – You Should Be In Cash – Wait For Support
POSTED BY PETE STOLCERS ON JANUARY 30
The market has been on a rampage. It feels odd to see a lower close and the drop this morning feels eerie. Stocks have rocketed higher and the backdrop is extremely bullish. This dip will flush bullish speculators out of positions and we will see profit-taking. Once support is established there will be an excellent buying opportunity.
In my comments Friday I urged you to take profits on half of your position. Yesterday I advised you to use SPY $285 as a stop on a closing basis. You should be in cash and you should be licking your chops to reenter.
In order to flush out weak hands the market has to drop for a few days. Unless we fall 50 S&P points a one-day event won’t do it. Bullish speculators need to feel pain for a few days after a big run like this to get them to bail.
The FOMC meeting is spooking investors. Bond yields have been rising and I am expecting hawkish rhetoric. This is a speed bump I’ve been referencing and it has the potential to pressure stocks for a few days.
Rising interest rates are market friendly as long as economic growth is intact. ADP and the Unemployment Report should be strong this week. That will help to calm nerves.
Earnings season is unfolding. Profits are excellent and guidance is spectacular.
Tonight’s State of the Union address will highlight the accomplishments during the last year and Trump will put pressure on Democrats to get a DACA deal done. He is willing to add another 1 million unregistered immigrants to the plan in exchange for “the wall”. I believe this is going to resonate with most Americans. The debt ceiling needs to be extended by 18 months or more so that it does not have to be revisited. That won’t happen unless politicians agree to a comprehensive immigration deal.
Swing traders need to patiently wait for the market to come in. Once support is established it will be time to reload. Use this time to evaluate stocks. A pattern I will be looking for features a breakout through a horizontal compression and follow through. Market weakness will force the stock back to the breakout. Ideally the stock finds support above the breakout as the market continues to drop. If you see this pattern you know you have a winner. You simply have to wait for the market to find support. When it does, but calls on that stock. If you are a swing trader DO NOT SHORT THIS MARKET. The moves will be incredibly fast and you have to be glued to your screen.
Day traders get ready for action. We are going to have two-sided opportunities. I still like buying dips on support. If the market makes a new low after two hours of trading favor the short side but take profits on the way down. This is an incredibly strong rally and the bounces will be violent.
Look for hawkish statements from the Fed. This drop will set up a buying opportunity.
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