The market has treaded water at the all-time high after fantastic news, but it has not been able to advance. Trading volume is relatively light and the S&P 500 has been trapped in a tight 50 point range during the last week. More than half of the stocks have reported earnings and the results have been excellent. Major economic releases will be posted in the next few days and there is no threat of Fed tightening. The market backdrop is bullish, but valuations remain extended.

Last week the tech giants posted incredible results. The “beats” were substantial, but this was already priced in. In general, the margin of exceeding estimates on both topline and bottom-line growth has not been this high in a decade. This news should have sparked buying, but the market is tired after an 8% rally in the last month. Q1 earnings season will start to wind down after this week.

GDP was better-than-expected last week (6.5%) and ISM manufacturing, ISM services, ADP, official PMI’s and the Unemployment Report will be released this week. The numbers have been good recently and with states reopening I am expecting gangbusters numbers. Typically, strong economic releases generate a mixed market reaction because the threat of Fed tightening increases. That is not the case now and the FOMC statement last week confirmed that they will not tighten until 2024.

The Coronavirus is spreading globally and that will hamper worldwide economic growth.

The savings rate in the US is very high and an estimated $2 trillion sits on the sidelines. That money will find its way into the economy and into the market.

President Biden’s tax plan has not spooked investors, but it could prompt profit-taking if the bill gains traction in Congress. Higher corporate taxes and higher personal income taxes are not market friendly. However, after the initial shock wears off investors will realize that they need market exposure. With bonds generating negative real returns (yields are lower than inflation) investors are forced to own equities if they want to generate a reasonable rate of return.

Swing traders should be on the sidelines – we won’t be there long. In the next week or two I will be evaluating the price action. If the market compresses it will be a sign that the gains during the last month will hold and that the bid remains strong. We will start to take new bullish positions if the market continues to compress. There’s still a chance that we will see a swift round of profit-taking. Tech giants have reported and that typically sparks some selling. Bullish speculation is very high and those “weak hands” can easily be flushed out of the market. Any dip will present a buying opportunity.

Day traders should look for asset rotation. The market is not going anywhere, but there’s lots of activity under the surface. Once a sector gets hot the stocks tend to have sustained momentum through the course of the day. This rotation presents opportunities to buy and short. On the daily chart of the S&P 500 you can see a number of “dojis” reflecting that the market close is almost equal to the opening price. This is a sign of equilibrium and a lack of momentum. There won’t be much of a market tailwind see need to trade stocks that have heavy volume and relative strength. There will also be some excellent post earnings plays. Heavy Buying, Relative Strength 30 and Red Hot are your go to Options Stalker searches. The S&P 500 could make a run at the all-time high this morning. Avoid chasing market gaps higher, especially at these levels. I suggest waiting to make sure that the bid is strong. The move this morning is fueled by beginning of the month fund buying. I won’t chase this market so I will be more active if we get a dip or a compression during the first 30 minutes of trading. I am not likely to participate much if we “gap and go”. I am trimming my size and trade count during this market compression. When we breakout/breakdown I will ramp back up.

Support is at SP Y $416.50 and resistance is at the all-time high.