July 16, 2018
Posted 9:15 AM ET - Last week the QQQ made a new all-time high and the SPY rallied to major horizontal resistance at $280. Trade war concerns are being ignored ahead of earnings season. Robust profits and the notion that Trump will negotiate trade deals ahead of November elections are keeping buyers engaged. Look for a steady grind higher this week. Banks posted good numbers Friday, but they did not provide much lift for the market. BAC is up after posting this morning and any strength in financials will push the SPY through $280. Bank buybacks are not on pace with expectations and that is keeping a lid on the action. Netflix will announce after the close today and Microsoft will post Thursday after the close. These are two of the highlights this week. The rally this year has been very concentrated. Amazon has accounted for 24% of the S&P 500 gains this year. On a combined basis Amazon, Microsoft, Apple, Netflix, Facebook and Google have accounted for 70% of the rally in the S&P 500 this year. I believe financials and industrials have room to run and they are the key to the next leg higher. China's numbers (GDP, industrial production and retail sales) were largely in line with expectations. The economic news is fairly light the next two weeks. The yield curve is flattening and many analysts believe that the Fed will tighten at a slower pace than they have outlined. Europe was hit by a Trumpnado last week. Angela Merkel and Teresa May were in its path. It’s human nature to expect more from friends and relatives so I expect Trump to soften his tone when he meets with Putin today. Any hint of trade negotiations with China would spark a massive rally. Stocks are trading at a reasonable forward P/E of 16 and a breakout through horizontal resistance would make under allocated Asset Managers very nervous. The market bid will remain strong until every mega cap tech company has reported. Swing traders should be long IWM and QQQ. The Russell 2000 has lost its relative strength and I suggest taking profits on IWM and moving that money over to QQQ. Tech stocks are leading the charge and the NASDAQ 100 made a new high last week - let's ride the fastest horse. As the market moves higher we will raise our protective stop to lock in profits. Use a close below QQQ $178 as your stop. Day traders should look for an opportunity to buy. If the SPY trades above $280 during the day, get more aggressive with your longs and use that level as a guide. If the SPY closes above $280, add to your bullish overnight positions. Netflix is a unique company. It has a significant weighting in the QQQ so the reaction will matter. Microsoft will be a better gauge of the overall tech sector when it reports Thursday after the close. Provided that the political rhetoric stays light this week, the market will grind higher. . .
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