Microsoft Will Spark Buying – Stay Long – Use These Support Levels For Stops
Posted by Pete Stolcers on July 19
Posted 9:30 AM ET – Earnings season is in full bloom and the next leg of this rally needs to come from financials and industrials. Mega cap tech stocks have been leading the charge and the recent breakout can be attributed to a handful of stocks. The S&P 500 and the NASDAQ 100 are through major resistance levels and profits will fuel the market. Stay long and use key support levels as your guide.
The early part of the earnings cycle is dominated by banks. Profits have been excellent and the XLF is through the 100-day moving average. Economic growth is strong, the unemployment rate is low, stress tests were passed, share buybacks are on the rise and the Fed plans to tighten. All of these influences are bullish and the financial sector will determine the strength of this breakout.
Industrials will start reporting in the next week and these laggards need to catch a bid. Trade war concerns have depressed this sector and profits should be good. Guidance will mention that tariffs could impact future profits, but those policies have not been formalized.
I believe that Trump will sign trade deals ahead of the November elections. A market correction could hurt Republicans and the GOP needs to gain seats in the Senate and it needs to maintain control of the House.
China has injected liquidity into its banking system and it is letting the yuan plummet. They are preparing for a trade war. Investors are heading for the exits and China’s market is down 30% from its high this year. Xi does not have to worry about elections or negative press so he feels he has the upper hand.
Domestic economic growth is strong and Q2 GDP should be well north of 4%.
Earnings are expected to grow 21% year-over-year and that is on pace with Q1. At a forward P/E of 16, the S&P 500 has a reasonable valuation and room to run. Netflix cast a dark shadow over tech stocks, but that will be negated when Microsoft reports after the close today.
The recent technical breakout has under-allocated Asset Managers on edge. They don’t want to miss the next leg of this rally and they will aggressively bid for stocks on any dip. I believe the downside is contained and the market is poised to run.
Swing traders are long QQQ and SPY. Maintain your long positions and use $178 and $279 as your stops on a closing basis respectively.
Day traders should wait for support this morning. Start buying once the downward pressure has eased. If SPY $280 is breached, wait for it to get back above that level and then use it as your guide. Bullish markets open on the low and close on the high. We want to see this pattern.
Try to weather this dip and look for a move higher in the next week.
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