Day Traders Should Buy – Swing Traders Should Wait – Here’s Why

Posted 9:30 AM ET - Yesterday the market shot higher and it erased the prior two days of loses. This strong rebound suggests that the market will make a new all-time high as we approach the climax of Q1 earnings season next week. On a short-term basis the market looks good and I believe that the dip this morning will be brief and shallow. Look for follow-through buying today. My bias for the next week is bullish, but swing traders don’t need to chase. The market has been in a stair-step pattern and I believe it will continue. We have taken three steps forward and we should be prepared for two steps backwards. In the chart today I have highlighted Q4 earnings season and I believe we will see a similar process. As earnings season approached in January, the market staged a nice 5% rally. Once the announcements began there was a brief dip and then the S&P 500 made a new all-time high. That rebound got everyone excited and it looked like we were "off to the races". The market braced itself for mega cap tech earnings and bullish speculators loaded up. Once the tech giants reported the market sold off (January 26). Given the current backdrop, I believe we will see a similar pattern. Stocks surged higher into earnings season and we just had 13 consecutive days where the market closed above the open. Runs like this are unusual and we typically see profit-taking. The first dip is a head fake because buyers are still engaged. As we witnessed in January, once tech giants report, the air gets let out of the balloon and the excitement fades. This next market drop is the one I'm waiting for and that is when I will reload my swing trades. Swing traders should be largely in cash. Monitor your bullish put spreads and try to buy them back for pennies. I like the market backdrop and I am intermediate-term bullish. However, fantastic earnings are priced in and the global spread of the Coronavirus will provide a headwind. We need to patiently wait for the next dip. Even though the market will charge higher the next few days, I believe that we will have a much better entry point for our swing trades in a few weeks. Day traders should stay balanced. I have been finding excellent opportunities on both sides of the market. Yesterday we saw consecutive long green candles stacked one on top of the other in the first 30 minutes of trading and it was a great day to buy stocks. Monday and Tuesday favored the short side. I believe that the market will briefly probe for support and that we will see follow-through buying and perhaps even a new all-time high today or tomorrow. The "dogs are barking" and you will find some nice bounces in stocks that have been beaten down. Those have the best intraday momentum right now and there are some excellent short squeezes that you can day trade. Use the short squeeze searches to find these stocks early. Support is at $411 and $414. Resistance is at $417.50 and $420. . .

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