September 19, 2018
Posted 9:30 AM ET - The market is flirting with a new all-time high, but it needs a catalyst. A neutral FOMC statement next week and/or a Congressional budget approval could do the trick. Canada is trying to pass a trade deal before NAFTA expires in a few weeks and that could also attract buyers. Headwinds are blowing and a runaway rally is unlikely. the Fed could make hawkish remarks after hourly wages increased .4% last month. Inflation could keep them in tightening mode and that would strip us of a potential catalyst. Politicians are close to a budget deal and it could be priced into the market. A trade deal with China is unlikely before the November elections. Trump reduced the next round of tariffs (10% versus 25%) on $200 billion worth of Chinese goods. The market liked the softer tone (temporary) yesterday. Credit conditions in emerging markets are fragile and a crisis could emerge quickly. As long as yields don't spike the market will ignore this constant threat. Iran will rattle it's sabers as the November timeline for economic sanctions approaches. Increased naval exercises are expected and Iran has threatened to shut down the Strait of Hormuz. If Democrats take the House in November it will be much more difficult for Trump to execute his agenda. The market won't like this development and polls suggest that it is likely. Investors are currently focused on robust domestic economic growth and surging corporate profits. At a forward P/E of 16, stocks are reasonably priced. This could change if companies start warning due to tariffs. Swing traders are long SPY and we have an intraday stop at $287. The market wants to breakout and if it does we will keep raising our safety net. On a longer-term basis I am fairly neutral. We don't know how all of the issues I've mentioned will play out. Personally, my overnight exposure is very limited and I am mainly day trading. Day traders should use the first hour range as a guide. If we are above the high, favor the long side. You can get more aggressive if the SPY is above $291.70. Overseas markets were up marginally so the early damage should be contained today. Quadruple witching will result in increased volatility. If the first hour range is breached and momentum is established we could see a directional move. This is typically a seasonally weak stretch for the market. Conditions tend to improve in October and buy then some of the issues I've mentioned should be resolved. Favor the long side and use protective stops. . .
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