BUY THIS DIP – Facebook Won’t Matter – Industrials Will Offset Tech
Posted by Pete Stolcers on July 26
Posted 9:30 AM ET – Yesterday the market broke out to a new relative high and rumors of a European trade deal sparked buying in the last hour of trading. Light volume the last few weeks is a sign that Asset Managers are under allocated. They don’t want to miss the next big run so they will bid aggressively. Facebook will weigh on the market early this morning, but that will be temporary.
Trade war concerns are the only thing keeping a lid on this market. Trump and the EU have agreed to forge a zero tariff deal. Industrial stocks will jump today and this depressed sector will offset any weakness in tech. This development will put pressure on China and Canada. Mexico’s new president has vowed to improve relations with the US and he is eager to strike a trade deal.
Much of the S&P 500 rally this year has come from a handful of mega-cap tech stocks. We are seeing rotation into financials and the yield curve is starting to slope upwards. Energy stocks will remain strong as tension with Iran escalates. Retail stocks are benefiting from strong employment. If industrials catch a bid this soft patch in tech won’t matter.
The NASDAQ 100 will be negatively impacted by Facebook, but it is one stock. Similarly, Netflix is one stock. Both have very unique business models and they are not far-reaching. Intel will post after the close and it will have broad implications for tech earnings. AMD posted a very solid number last night. Amazon will also post after the close.
Over 80% of the companies that have reported earnings have exceeded estimates. Profits are on track to grow 21% year-over-year.
Tomorrow Q2 preliminary GDP will be posted and most analysts are expecting 4% growth. We haven’t seen this level in almost 15 years.
I believe the greatest risk is to the upside. Mutual fund outflows reached $20 billion in June and that is the highest level we’ve seen in two years. Investors were spooked by Trump’s trade war rhetoric and they bailed. Similarly, Asset Managers have not embraced this rally and the anemic volume proves it. This breakout will gain traction and the latecomers will pile in.
Swing traders are long SPY and QQQ. Use a closing stop of $178 and $280 respectively. I believe we are on the verge of a major market breakout.
Day traders should let the early weakness run its course. If the dip is brief and we instantly snapped back, aggressively get long. If the market drifts lower be patient. We are above major resistance and we can lean on support levels ($178, $280). Look for strength in industrial stocks today.
Buy this dip.
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