Market Pricing In Budget Extension – Ride Your Calls and Raise Stops

Posted 9:30 AM ET - The market staged an impressive rally to a new all-time high yesterday. The price action was very steady indicating a strong appetite for stocks. The threat of a possible government shutdown is being discounted and the focus is on earnings growth. Stay long and keep raising your stops. The move this year has been characterized by gaps higher and closes that are above the open. This is a particularly strong pattern when it happens on consecutive days. In the next phase of the rally we are likely to see lower opens and higher closes. Apart from the budget deadline tomorrow, there are not any speed bumps. Politicians will extend the budget another month and the negotiations will continue. In a mid-term election year both parties have too much to lose. They will kick the “can” down the road and the market is pricing this in. Economic releases have been good. This morning China's numbers (GDP, industrial production and retail sales) were in line. The first two were little better-than-expected and retail sales were little soft. In general, global economic conditions are strong. Central banks are tightening and the rhetoric is more hawkish. This is normal during an economic growth cycle and we want to see an upward sloping yield curve. Earnings season has started and the results have been excellent. Optimism is high and that is reflected in the guidance. Swing traders should use SPY $277 as their stop on a closing basis. Ride this wave as long as you can. We should see positive price action the next few weeks and mega cap tech stocks will keep a bid to the market ahead of earnings announcements. Day traders need to be patient when the market gaps higher. Make sure the gains are holding to avoid getting trapped in a reversal like we saw earlier this week. Once support is established and the market starts to grind higher, get long. Look for breakouts through horizontal resistance. All of the pieces are in place for this rally to continue. The mudslinging in DC will get nasty, but the budget will be extended. . .

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