February 19, 2019
Posted 9:30 AM ET - The market has staged an impressive bounce off of the December lows. It has broken through the 100-day and 200-day moving averages and those technical levels now represent support. A more dovish Fed and trade negotiation progress with China are fueling the move. The Philadelphia Federal Reserve and the Atlanta Federal Reserve stated last week that they project one rate hike this year (versus two). The San Francisco Federal Reserve does not project any rate hikes this year. In the last FOMC statement we learned that the Fed will curb its balance sheet reduction. They have moved off of their hawkish stance from 2018 and the FOMC minutes from January will be released tomorrow. There is a little "Fed Speak" this week. Trade negotiations with China are ramping up. The meetings are scheduled closer together and higher level officials are involved. All of this suggests progress. Structural issues still exist and the framework is critical. Trump might postpone the next round of tariffs (scheduled March 1) by 60 days if the negotiations are fruitful. It is likely that existing tariffs continue until a deal is reached. The US Commerce Department has sent a report to President Trump that could impose steep tariffs on European vehicles. No progress has been made on this trade front and the European Commission Chief (Junker) will be speaking in Stutgart today (Daimler headquarters). Seven members of the Brexit opposition party have resigned. The EU is not budging on their proposal, but at least the pressure within England's Parliament should ease. The deadline is only 40 days away and a hard exit is possible. Global economic conditions are very soft, particularly in Europe. China is easing as much as it can and their economy is gradually slipping. Traders will be watching the Eurozone flash PMI carefully on Thursday. Domestic conditions are solid, but the decline in retail sales last week (-1.3%) was unexpected. US flash PMI's, the Philly Fed, existing home sales and durable goods orders will be posted Thursday morning. The market needs solid results to tread water. Earnings season is winding down and the results have been excellent. Stocks are trading at a forward P/E of 16 and good news is priced in. Economic conditions need to be maintained, earnings warnings need to be minimal, Fed speak has to be dovish and trade negotiations must remain constructive. If all of these influences remain positive the market can hold current levels. Swing traders were stopped out Friday when the SPY closed above $277. We will wait for the next shorting opportunity and we will enter when major support levels are broken. This could happen very quickly and we saw 100 point S&P 500 drops in a single day two months ago. Everything has to go perfectly from this point forward. I am not going to have a standing order. I will wait for technical confirmation. Day traders should focus on the long side. Early dips have been gobbled up and we are likely to see a bounce. After that you have to use the first hour range as your guide. If we can't get through it, fade the extremes. The market is above the 200-day MA ($274.22) and you should favor the long side. I will be watching for late day selling and follow through the next day. When I see that price action I will know that this bounce has run its course. . .
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