Huge Trump Rally – Be VERY Careful Today – This Could Be A Market Top

Posted 9:20 AM ET - In my comments yesterday I mentioned that stocks would retreat ahead of Trump's speech before Congress. We saw weakness throughout the day and the market closed on its low. I also mentioned that investors would take a deep breath and the market would grind higher this morning. The S&P 500 is up 16 points and the speech was well received. The macro backdrop is still bullish for stocks. We should see a nice rally today, but be careful. A big gap higher like this will attract bullish speculators. Once the early excitement wanes we could see profit-taking. That reversal will flush bullish speculators out and the downward momentum could gain traction. That price action would mark a temporary top and it is exactly the scenario I outlined last week. Today we want to see an early surge higher and a small pullback (5 S&P points) in the first hour of trading. Sellers will test the bid and if it holds stocks will grind higher the rest of the day. This dip will also present a nice buying opportunity. If the market gives up most of the gains, start taking profits on your long positions. In my comments yesterday I also mentioned that official PMI's would be strong. China's manufacturing PMI beat estimates and J.P. Morgan raised its GDP forecast from 6.1% to 6.6% for 2017. Fed officials (Kaplan, Williams and Dudley) have been suggesting that a March hike is possible. According to Bloomberg and the Wall Street Journal, the likelihood of a rate hike in two weeks has increased to 80%. This will keep a lid on the rally. Trump's policies are market friendly, but now he has to execute. Last night's speech might heal some wounds across the aisle and hopefully the gridlock in DC will end. Swing traders need to be very alert today. I suggest taking profits on half of your positions early this morning. If the market closes on the high the day you will still have excellent exposure and it will be easier to manage the rest of your profits. If the SPY closes below $237, I suggest exiting all of your long positions. This retracement will be more than 10 S&P points off the high and it will be a sign of profit-taking. It will also breach Monday's high and that will also be bearish. Day traders need to be patient on the open. All stocks will shoot higher and it will be difficult to identify relative strength. Getting long out of the gate will also leave you exposed if the market reverses. I'm going to be looking for stocks on both sides and I'm going to wait for that first dip. If support holds I will nibble on some long positions. If that support fails I will favor shorts on the notion that the highs are in and a reversal is likely. I watched the speech last night and I was encouraged. Both parties are giving it high marks and we are seeing a "feel-good" rally this morning. The reality is that Trump still needs to execute his game plan. Furthermore, we don't know if domestic economic growth is strong enough to shoulder a rate hike in two weeks. Personally, I like taking profits on these big spikes. Lock-in some of your gains early today and exit ALL longs if we close below SPY $237. . .

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