The narrative has not changed much overnight and the S&P 500 is flat. In the last two weeks the index has not moved much and we are seeing price consolidation after an 8% run in April. The market has not been able to rally on good news and that suggests exhaustion.

Q1 earnings have been remarkable. Of the companies that have reported, 86% have exceeded consensus EPS estimates. In aggregate, companies are reporting earnings that are 22.8% above estimates (five year average 6.9%). By the end of the week more than three quarters of the companies in the S&P 500 will have reported. The revenue growth rate has been 9.8% on average (3.9% is the five-year average). The net profit margin of 12.5% is the highest in more than a decade. Clearly, companies have knocked the cover off the ball.

Last week the Fed released an extremely dovish statement and it repeated that it will not tighten until labor markets have improved substantially. This means that strong economic releases will be market friendly. ISM manufacturing, ISM services and ADP were extremely strong this week. Initial jobless claims were 498,000 (540,000 expected) and that bodes well for tomorrow’s Unemployment Report. There is a chance that bonds will decline if we see a number above 1 million new jobs tomorrow and a bond drop would put pressure on tech stocks as interest rates rise.

With all of this fantastic news, the market has not been able to move higher. The expectations have been high and there’s not much gas left in the tank after an 8% rally in April. The market needs to spend time at this level and it is digesting gains. I believe that there’s a chance we will see a small dip in the next two weeks. That will be a buying opportunity. You need to be ready with your buy list because it won’t last long. If we do not get the market decline and we simply compress at this level I will be ready to buy a breakout.

Swing traders should be aggressively looking for stocks with relative strength and heavy volume breakouts through horizontal resistance after reporting excellent earnings. If the market dips we want to see that relative strength preserved. That will be a sign that these stocks are ready to move higher when the market finds support. If the market does not decline and we simply compress, we will buy the next breakout through SPY $420. If you are a longer-term swing trader and you don’t mind taking some heat in the next two weeks, you can buy now. I prefer to wait.

Day traders should look for sector rotation. Basic materials, industrials and healthcare sectors have been strong. Tech has been weak. I have been finding better opportunities on the short side than I have been on the long side. Once the selling pressure begins the momentum builds and the moves are sustained. I am able to ride the trade for much longer without being stopped out. On the long side, the gains are hard-fought and it is a three steps forward, two steps backwards process. I need to be much more passive with my targets when I am buying stocks. Of course, there are exceptions and there are always a handful of stocks that are flying higher. I have not seen many short squeezes in the last few days and these stocks have quieted down. The overall market has not moved much so your stock picks will have to do all of the heavy lifting. Look for relative strength/weakness and heavy volume. Use the Option Stalker searches as your guide.

Support is at SPY $411 and $415 and resistance is at $417.50 and $420.