My Game Plan For Day Trading Today

Posted 9:30 AM ET - The S&P 500 is only 30 points from the 100-day moving average. I believe that resistance level will be tested in the next week and the market rally will stall. Earnings have been good and the FOMC statement was dovish. I am watching for signs of exhaustion and I still believe the next strong move is down. Apple rallied after posting results Tuesday evening and Facebook is up 12% after posting results yesterday. BA, AMD and WYNN are other notable winners. Microsoft is down 2.4% after reporting earnings. In general, the results have been good, but guidance has been cautious. Stocks are trading at a reasonable forward P/E of 16, but we are approaching the upper end of the range. The Fed plans to keep a larger balance sheet than previously expected. That means they will not be unwinding at the $50 billion per month rate. This has been a form of tightening and the market rejoiced. The statement does not give us much detail on the magnitude of the change. They might reduce it to $49 billion per month for all we know. Powell said that domestic growth is good, but global growth is slowing. He also mentioned that the Fed is taking a more passive approach while political uncertainties (government shutdown, trade negotiations and Brexit) play out. Stocks surged on the news, but settled down quickly. The market is pricing in zero rate hikes for 2019 and the Fed still anticipates two increases. This disconnect elevates market risk. Yesterday ADP reported that 213,000 new jobs were created in the private sector during the month of January. That is a very strong number. Tomorrow's job's report could suffer from the government shutdown (a miss might be discounted). This morning we learned that China's manufacturing PMI fell to 49.5. That is officially in contraction territory. The services PMI was a robust 54.7. China depends on a strong manufacturing sector and I view this release as negative. Italy's GDP fell .2% and they are in a recession. Germany's December retail sales fell 4.3% year-over-year (the biggest drop since 2007). Europe’s economic growth is VERY low. Yesterday I posted other statistics that pointed to a global economic slowdown. This is the greatest market threat in 2019. Trade deals will prevent economies from falling off a cliff, but they won't stop the slowdown. Trade talks with China will conclude today. Both countries will make a statement and traders will be waiting for the next appointment. If it is scheduled more than two weeks out it will be a negative sign. The March deadline approaches and both sides are eager to make a deal. If the talks ramp up (meetings are more frequent) it would be a sign of progress. England will try to renegotiate the Irish border with the EU. If Europe stands firm, England will exit without a deal. That would be bearish for the market. England voted not to extend the departure date. Swing traders will remain in cash. The final leg of this rally will play out in the next week and we will start scaling into bearish positions when we see signs of exhaustion. Day traders should patiently wait for signs of support. Yesterday the SPY broke through horizontal resistance at $267 so I would favor the long side if we are above it. Look for choppy trading during the day. If the first hour range is intact by mid-morning we will stay in it. There is a chance for an upside breakout on US/China trade negotiations so I would be very careful with the short side today (consider not shorting at all today and buy dips). Watch out for trade rumors. They have been circulating. Wait for the actual press conferences. I am not interested in "lip service", I want to know the date of the next meeting. . .

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