Watch This Sector – Market Needs It Or Rally Will End

Posted 9:30 AM ET - The market has been grinding higher and it is approaching resistance at the 50-day MA. Earnings guidance will be critical during the next few weeks. The overnight news was generally positive, but the market will have to fend off selling pressure this morning. China's chief negotiator (Liu) has scheduled the next round of talks in Washington on Jan 30-31. This is a sign of progress. China's economic numbers have been slipping and they need a deal. Easing by the PBOC has not stopped the bleeding. China hopes that fiscal stimulus will stem the tide (reduction in VAT taxes and tax rebates for certain industries). I believe that future economic news from China will be weak. Theresa May won the confidence vote and "Plan B" will be introduced by Monday. It is likely that England will maintain closer ties to the EU (market friendly). It seems that this whole process is back to square one and they are only 10 weeks away from the deadline. There was also positive news from Greece and Venezuela, but nothing that will move the market. Banks have generally moved higher after posting results and the market needs leadership from the financial sector if it is going to push through the 50-day moving average. Netflix will post after the bell and the stock surged higher when they announced a hike in subscription prices. At a forward P/E of 14.5 stocks are reasonably priced. Profits on average are expected to rise 11% year-over-year for the S&P 500. Fed Speak has been benign this week and there are a few more speeches scheduled. There is no new information. They will remain flexible and we can expect balance sheet reduction. The government shutdown is starting to impact GDP. This is something that can be corrected quickly so market is not overly concerned - yet. Swing traders should stay in cash. The gains from this point forward will be hard-fought. We will wait for signs that the momentum has stalled and we will look for shorting opportunities. Day traders should let the market come in. The overnight news was good and the breakout at SPY $259 will hold. Wait for support and trade from the long side. Once the first hour range is established we are likely to stay in it the rest of the day. Trading volume has been light and the action is choppy. I believe this bounce will last two more weeks before it runs out of gas. . .

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