April 1, 2019
Posted 9:30 AM ET - This is going to be a busy week of economic releases and we are off to a good start this morning. China's PMI was better than feared and some analysts believe that fiscal and monetary policies are starting to gain traction. The market has been compressing in a tight range near major horizontal resistance during the last month and the releases this week could result in a breakout/breakdown. China's Caixin manufacturing PMI came in at 50.8 and the official PMI came in at 50.5. It is back above the 50-mark which indicates contraction. China and the US will resume trade talks in Washington this week. This process will drag on for a few more months and a summit is not planned until June. The expectations are high. Retail sales fell .2% and that was below estimates (+.2%). ISM manufacturing, ISM services, ADP and the Unemployment Report will be posted this week. Traders will be looking for any signs of strain. The US has maintained stable growth while other major economies have faltered. Trump is threatening to shut down the southern border and Mexico is our third largest trading partner. He wants Mexico to stop the flow of migrants through its country. Brexit is incomplete limbo. All eight scenarios have failed to generate enough votes in Parliament. England will either leave without a deal next week (bearish) or it will try to get an extension from Europe. The EU has grown tired of this indecision and an extension will come at a cost. The Fed is extremely dovish and the yield curve has inverted. That is typically a bearish sign for the market. Earnings season will begin in two weeks. Stocks are trading at a forward P/E of 16.5 and that is the upper end of the valuation range. We need to watch for warnings. Swing traders are on the sidelines and we were stopped out of a half position on Friday. If economic numbers are strong this week and the market can break through horizontal resistance we will join the party. Until then, we will wait and see. I still believe that there are many issues that could go haywire and the market is pricing in positive outcomes. Day traders should wait for the bid to be tested this morning. Gaps higher have been frequently faded. Once support is established - favor the long side. SPY $284.58 is the closing high for the last five months and we will challenge it this morning. That should be a fairly stiff resistance level and a breakout combined with strong economic numbers this week could gain momentum. Watch ISM manufacturing 30 minutes after the open. . .
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