Bonds Are Stable and Tech Stocks Have Room To Run

Posted 9:30 AM ET - Yesterday the market took a breather after running hard the last few days. Buyers are back in control this morning and the S&P 500 is up 12 points before the open. There isn't much incremental news and I expect the bid to be strong heading into earnings season next week. As I mentioned in my comments yesterday, the action would be light and we were likely to set an early range. The market never got out of the first hour range. In the absence of any directional movement, traders sat back and waited for the FOMC minutes. There are days when you should keep your trading activity light and yesterday was one of them. When the price action is choppy, traders who “force it” are exposed to death by a thousand cuts. Initial jobless claims came in higher-than-expected this morning, but that has not dampened spirits. Holidays typically impact the number and people postponed applications ahead of Easter. That would explain the small rise this week. Traders are focused on the Unemployment Report last week and the strong ADP number. States are reopening and the hospitality industry (8% of the labor force) is hiring. The market doesn't have to worry about Fed tightening on the heels of strong economic numbers and this is a "sweet spot" for investors. The Fed confirmed that it is not going to "pump the brakes" until 2024. They are expecting higher inflation due to supply disruptions and they feel that it will run its course by the end of the year. Bond prices have stabilized and interest rates are not going up. This has sparked buying in the tech sector and the NASDAQ 100 is up almost 1% overnight. M2 money supply has spiked and the stimulus checks are in hand. Credit concerns are low and some of that money will find its way into the market. The savings rate has been extremely high during the pandemic and $2 trillion sitting on the sidelines. Financial institutions dominate the early scene and they will start posting results next week. Higher yields, improving employment and low credit concerns should provide a nice tailwind. Optimism builds ahead of mega cap tech earnings and I believe that the market will continue to grind higher. Swing traders should be long SPY. Your bullish put spreads should be in great shape and you can roll those positions on the next market dip. If you're looking to add to your positions now, focus on tech stocks. They have been beaten down and they have room to run. Make sure that you are leaning on technical support. I like selling bullish put spreads on stocks with relative strength and heavy volume. My short strike price is below technical support and that provides an extra layer of protection. Don't chase, you will have opportunities to get long. This rally has been three steps forward and two steps backwards and I'm expecting that to continue. My first target is SPY $410. If the market gets to $420 in April we need to be cautious. Day traders need to wait for support to be confirmed this morning. After a big run last week I do not believe that this will be a “gap and go rally” right out of the gate. I believe that we could see some profit-taking on the open and that has been typical of gaps to a new relative high. Watch the price action during the first half-hour. If we compress that would be a sign that buyers are aggressive and that profit takers have been held at bay. If we see long red candles in the first 30 minutes we are likely to fill in some of the gap. That dip will provide us with an opportunity to identify stocks with relative strength. Once market support is established these stocks will takeoff. I still prefer trading from the long side. My game plan is to wait for a compression or a dip on the open and then to buy support. If the market shoots higher and it never looks back, I will miss the move. I'm not going to panic since my swing trades will benefit. I don't want to chase on the open only to have the rug pulled out from under me. Support is at SPY $405.50 and resistance is at $410. . .

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