Today’s Trading Game Plan – No Market Speedbumps For 2 Weeks

Posted 9:30 AM ET – The S&P 500 found support just above the 100-day MA and that is a sign that buyers are engaged ahead of earnings season. The market has also closed above the 50-day MA and that is the first line of support. Earnings season kicks off Friday and major banks will dominate the scene next week. The CPI increased .6% (.5% expected) and that was “hot”. This morning the PPI only increased .2% (.4% expected) and that might provide some relief. As I pointed out yesterday, these hot inflation readings are as high as we have seen in 40 years. They have not had a negative impact on the market… yet. The focus is on earnings and they start Friday with JPM. Banks will dominate the early releases. They will benefit from a rising yield environment and I am expecting a decent reaction. Mega cap tech stocks will be in focus and the earnings have been stellar. Consequently, I feel that the bid will remain strong until they post. They will finish reporting during the FOMC meeting so that is an important date to mark on your calendar. As long as the Fed has not started to tighten, the market bid will remain strong. The next FOMC meeting is 2 weeks away so we still have time. This will be a critical juncture for the market and I suggest using caution towards the end of January. Swing traders, should have reached their target allocation for bullish put spreads early in the week. If you picked the strongest stocks and you sold them below major technical support levels, you are in great shape. The put spreads will expire before the earnings announcements and if you have been focusing on the Option Stalker “Buy Into Earnings” search you know these stocks like to rally into the number. Listen…. tick, tick, tick. No that is not a bomb, it is time premium decay eating away at the options premium on your short puts. Relax and manage your positions. Day traders, the market tailwind is at our back. The market bounced off of the 100-day MA and it is above the 50-day MA. Focus on the long side. Overseas markets were flat and we will have a slightly higher open. I would not chase stocks. The upward market momentum has not been great. There have been lots of intraday compressions. Once we make the initial move, we sit. Look for the hot sectors and ride the coat tails during that rotation. Basic materials stocks (ore, fertilizer, oil…) have been hot. My ideal set up today would be an early probe for support that tests this gap up. That will give me a chance to identify relative strength. Once the market finds support I will look for an opportunity to buy. This first window might be the best of the day. I feel that tech stocks should also start to gain traction into earnings season. TLT bounced and it is up before the open. That should provide a springboard for tech stocks. An “inside day” is possible. If the market can’t breakout of the prior day’s range, error on the side of caution and trade less. Support is $469 and the 50-day MA. Resistance is at the high from Wednesday and $476. . .

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