May 15, 2018
Posted 9:30 AM ET - Last week indices rallied above major moving averages and support has held for a few days. Unfortunately, the headwinds are stiff and many dark clouds still loom. Trade negotiations with China, the EU and Mexico are in limbo. Trump is always prepared to walk away from the deal and that uncertainty is keeping a lid on the market. Take profits on QQQ and SPY on the open this morning. Stocks could move either way in the next few weeks and we are going to cash. Trump has had a conciliatory tone towards China and that was apparent yesterday when he hinted at lifting some sanctions against ZTE (Chinese Corporation). The two sides are still miles apart and a delegation will meet in Washington DC Thursday and Friday. I'm still expecting a positive tone ahead of denuclearization talks with North Korea. China got them to the table and they will help keep them there as long as trade talks remain friendly. A NAFTA deal will not be done by the May 17th deadline. Rumor has it that there could be a mini deal for cars. European trade negotiations have been slow. The EU is fragmented and possible sanctions against companies that do business with Iran will complicate matters. Yesterday the market opened on a strong note and it gradually drifted lower the entire day. This reversal is spilling over and the S&P 500 is down 10 points before the open. Earnings season is over and 10-year U.S. Treasury yields are above 3%. The headwinds are blowing and there are not any catalysts. Investors will reduce risk. China's industrial production was better than expected and retail sales came in a bit soft. Global economic conditions remain strong. The Fed is likely to hike rates in June. Oil prices have been moving higher and that will put upward pressure on inflation. Swing traders need to lock in profits and head to the sidelines. We caught a nice little move from QQQ $163.50 and I don't want to give those gains back. Conditions are uncertain and the market could swing either way. Trade negotiations will take time and the market will chop around until this is resolved. Trump has stated that investors need to prepare for volatility and he could play "hardball". Day traders should watch the first hour range. If the market is above the high, favor the long side. If the market is below the low, favor the short side. Major support is at SPY $270. If that level is breached the momentum will be strong and you should buy puts for swing trade. This is option expiration week and there should be one big day where the market makes a sustained directional move. It could go either way, but my gut tells me it will be on the short side. . .
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