Market Needs Financials – Support Has Been Established – Bid Will Grow

Posted 9:00 AM ET - The market has been as flat as a pancake this week and the S&P 500 is been a 10 point range the last two weeks. Trading volume is declining and I expect it to improve next week as earnings crank up. China will post industrial production, retail sales and GDP overnight. We need to see solid numbers if the market is going to challenge the all-time high. Higher interest rates will not be a problem this year if we have decent global growth. Janet Yellen spoke at a conference in San Francisco yesterday and there weren't any new developments. She has a speaking engagement tonight at Stanford. The next FOMC meeting is on February 1 and given the Fed's aggressive agenda investors will be nervous. Most analysts are expecting a rate hike in June. Donald Trump will take office tomorrow and his acceptance speech will be presidential. He will avoid "shock and awe" policy changes next week because he wants his cabinet approved. I've been urging swing traders to keep their positions small. This lack of market movement crushes option buyers as time decay eats away premium. The market has to breakout of this range in order for premium buying strategies to be viable. Day trading has also been tough. We've been able to find a few trades here and there, but without a market tailwind the moves are small and they quickly lose their momentum. Trim your size, reduce your activity and set passive targets. I didn't think we would be in a defensive mode in the first few weeks of 2017. This is typically a busy month. Trading volumes should return next week. I still believe the market will breakout to a new all-time high and it should do so in the next two weeks. I also believe that this is going to be a very volatile year. Higher interest rates, major policy changes and explosive rhetoric from Donald Trump will keep the market on edge. Keep your powder dry until the market breaks out and then be ready for action. I'm expecting decent numbers out of China tonight and that should provide a nice bid tomorrow. Financial stocks pulled back a little from lofty levels after posting earnings this week. The results were good and yesterday the XLF found support at the 50-day MA. This sector is critical to a market rally. It does not have to move higher, but it does have to tread water. I believe support has been established. Buyers will start to nibble next week and the volume will come back gradually. . .

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