Daily Commentary: May 11, 2018

Terrie Amengual1Option Commentary

Ride the QQQ Calls and Use This Intraday Stop To Lock In Profits

Posted by Pete Stolcers on May 11

The political events that have been weighing on the market are being resolved. The S&P 500 closed above its 100-day MA and that is bullish. Technical support will solidify if it is able to stay above that level for a few days. The political winds can change quickly – use SPY $270 as an intraday stop.

North Korea released three hostages and the meeting with Trump will take place in Singapore a month from now. China was instrumental in getting Kim Jong Un to the table and that will keep the trade negotiations “friendly”. These meetings continue behind closed doors and Trump has refrained from tweeting about China. A potential trade war with the second largest economy in the world has investors on edge. As long as these winds stay calm, the market will rally.

The EU tariff deadline is a few weeks away. Trade negotiations will be more difficult since Europe is fragmented. Trump told Mexico that NAFTA is ready; they just need to commit to securing their side of the border.

Rescinding the Iran nuclear deal has been positive for the market this week. It was a show of strength by the US and we have many allies in the region (Israel, Saudi Arabia, Iraq, Egypt, United Arab Emirates and Jordan). Oil prices are moving higher and the energy sector has been leading the market rally.

This is the beginning of an economic growth cycle. Interest rates will move higher and the initial market reaction is historically negative. Investors traditionally worry that higher yields will strangle economic growth so they sell stocks. We’ve seen the bearish reaction to a 3% 10-Year yield and those fears are settling down. Economic growth continues to be strong and inflation (CPI/PPI) has been moderate. The Fed has breathing room and they only plan to raise rates two more times this year (dovish). By historical standards, interest rates are very low and they have a lot of room to run before they impede economic growth.

Earnings season has been excellent and guidance is strong. On average revenues have grown 8% and profits have grown 23%. These are some of the strongest numbers we’ve ever seen.

Swing traders should be long QQQ at $163.50. We bought the breakout and we are going to raise our stop to $167.50 on an intraday basis. Aggressive traders should have purchased SPY when it was closing above the 100-day moving average yesterday. Use SPY $270 as your stop on an intraday basis. The market momentum and price action look bullish, but the rug can get pulled out from under the market at any time.

Day traders should favor the long side if the market stays above SPY $270. Try to buy dips once support is established. The market has run hard this week and we can expect some pullbacks along the way. If the market is above the first hour high, get more aggressive and use that level as your stop.

The market wants to climb, but danger lurks. Make sure you use intraday stops at major support levels.


Market commentary provided by OneOption, LLC a firm separate from and not affiliated with Regal Securities L.P. Regal Securities L.P. has not participated in the creation of the content, and does not explicitly or implicitly endorse the content

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