April 25, 2019
Posted 9:30 AM ET - The market made a new all-time high this week and good earnings fueled the move. Stocks are trying to grind higher, but there is no follow through to the breakout Tuesday. Intraday volatility is low and the volume is below average. Earnings announcements will climax in the next week. The headwinds are blowing and it feels like the market will be trapped in a range.
Microsoft and Facebook exceeded estimates and both stocks are trading higher this morning. That was critical for the market and it sets a good backdrop for Intel and Amazon today. Short sellers and profit takers will remain passive for another week. Once mega cap tech stocks have reported they will get more aggressive. Cyclical stocks have been struggling and financials failed to participate in the rally Tuesday. Oil inventories are high and energy stocks have also stalled. The market needs broad participation to move higher. Tech can’t do it alone.
Trade negotiations with Japan will begin and Europe has agreed to start trade talks. Trump could impose auto tariffs in three weeks and that is the next potential speed bump.
A trade deal with China is expected in May and the negotiations are proceeding. This would be a major victory for Trump and it would pressure other US trading partners to get a deal done.
Central banks have their foot on the gas. Europe and Japan have negative interest rates and they do not plan to tighten this year. The PBOC said that it is not going to ease for a while and that might be a sign that economic conditions are improving.
The FOMC will meet next week and this should be a non-event. No rate hikes are planned until 2020 and the balance sheet roll-off will end this fall.
The macro backdrop is stable, but stocks are priced for good news. Any deterioration in economic activity will weigh on the market. Japan and Europe are struggling and we don't know if the uptick in China is the beginning of a trend or a small bounce.
Swing traders are on the sidelines. We will wait for earnings releases and signs of follow-through. I'm not expecting a massive breakout to the upside. Stocks are fully valued and gains will be hard-fought from this point forward. I believe that economic statistics in China, Japan and Europe will be critically important this summer.
Day traders should wait for a dip. The bid is tested early in the day and that drop sets up a buying opportunity. I recorded a video last night that shows you how to trade earnings releases using Option Stalker. Search for positive reactions, relative strength and a buy signal. This combination produces high probability trading setups and it is easy to configure. Yesterday I focused on KNX and TXN. Earnings season is in full bloom and there are lots of great opportunities each day.
I'm expecting an upward bias for the next week and tight trading ranges. We are not seeing broad-based participation and the upside is limited.
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