July 30, 2018
Posted 9:40 AM ET - We need to see a breakout to new highs on record earnings last week and we didn’t get it. Facebook muddied the water and the $120 billion dropped was the largest ever. Intel has broader market implications and it plunged Friday. Tech stocks have been leading the charge this year and they plunged last week. The NASDAQ 100 closed below critical support at QQQ $178. The window of opportunity passed and the likelihood of a market breakout has been greatly reduced. Corporate earnings have been excellent with more than 80% of companies beating estimates. Profits are on pace to grow more than 20% year-over-year. This catalyst should have fueled a nice rally, but it did not. This will be a very busy week for earnings releases, but the air has been let out of the balloon. GDP hit its highest level (4.1%) in 13 years. Economic growth is strong and there are no signs that it will ease. President Trump vowed to work on a tariff agreement with Europe. Proposed tariffs will be postponed during the negotiation process and this eased concerns. Mexico is eager to sign a trade agreement and their new president wants to improve relations with the US. This was an important development and the market had everything it needed to move higher. China and the US are exchanging punches and the rhetoric is harsh. Over the weekend Trump said that funding for the wall and immigration reform need to be passed. The budget resolution must be approved by September 30th and Trump suggested he would veto it if immigration reform is not addressed. That means that see a government shutdown. We needed to see a convincing market break out last week. That would have prompted latecomers to pile into the market on fear that they would miss the next leg of the rally. Record earnings, strong economic data and a trade deal with Europe should have forced their hands, but it didn't. A lack of panic buying means that we are likely to tread water and compress in this range indefinitely. The trade war with China, a possible government shutdown, an interest rate hike by the Fed and the November elections will loom over the market. From a trading standpoint we need to sit tight and wait for a market pullback. Buy dips and take profits on the bounces the rest of the year. I don't want to make this sound dire, but we had the perfect storm last week for a market breakout and it didn't happen. Swing traders should stay long. Use a closing stop of $280 on the SPY. Day traders need to use the first hour range as your guide. As long as the SPY is above $280, I will look for opportunities in these sectors (financials, energy and industrials). If the market is weak I will short tech stocks as long as the QQQ is below $178. Capitalize on rotation out of tech and into other sectors this week. . .
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