Bullish Speculators Will Get Flushed Out Soon – Apple Earnings After the Close

Posted 9:00 AM ET - I believe we are seeing the final leg of this rally. Tech stocks are leading the charge and optimism is high ahead of Apple's earnings after the close today. Facebook will announce after the close Wednesday. Bullish speculators will get flushed out of tech stocks and we should see a rotation into other sectors. Earnings announcements are peaking and after this week the optimism will start to wane. Politics will once again be in focus. The market will grow impatient if progress is not being made on tax reform. The economic numbers recently have been a little light. China's PMI's, Q1 GDP and ISM manufacturing to mention a few. Given the Fed's aggressive tightening agenda, we need to see improvement. ISM services and ADP will be posted tomorrow. Last month ADP showed strong job growth in the private sector (263,000) and it contradicted the Unemployment Report (98,000). ADP is much more credible from my perspective and this number will be highly scrutinized tomorrow. The expectations are 170,000 new jobs. Any economic speed bump will spark profit-taking and ADP needs to be above 170,000. The FOMC will also release its statement tomorrow. They will acknowledge the dip in employment, but they will leave a June rate hike on the table. Any surprise reaction favors the downside. The recent market rally will give the Fed a window to raise rates in June and they will take it. I am not overly bearish, but I believe the market will retrace and fill in some of the gaps we've seen in the last two weeks. Bullish speculation is high (especially in tech stocks) and we are likely to see a pullback. The market leadership has been very narrowly defined and that is not a healthy sign for a sustained rally. Swing traders should be buying back out of the money bullish put spreads and locking in profits. I suggest being flat before the FOMC statement tomorrow. The market will pullback in the next week or two and that will provide us with another opportunity to sell out of the money bullish put spreads. Day traders should expect a relatively quiet day. We will see some position squaring ahead of major announcements in the next 24 hours. Resistance is at SPY $239 and at the all-time high. Energy and financials are the key to a rally. If these sectors perform well the market will push higher. I will be looking for opportunities to short tech stocks in the next few days. Good news is priced in and they are ripe for a pullback. This is the final push higher. Exit your long positions and look for signs of profit-taking in the next week. Late day selling would be bearish. . .

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