May 3, 2018
Posted 9:30 AM ET - Yesterday the FOMC left rates unchanged and they plan to hike two more times this year. Inflation is at their 2% target and they feel it will moderate. This was a dovish statement and the market declined after the announcement. I view this reaction as bearish and the market is going to challenge major technical support this morning. A possible China/US trade war is hanging over the market. The rhetoric has been tame the last few weeks and that has done little to calm investors. A delegation of negotiators will return this weekend. China will make some concessions, but most analysts fear it won't be enough. The postponement of European tariffs did little to instill confidence. NAFTA could be finalized soon, but Trump won't sign the agreement until Mexico agrees to secure its side of the border. The Mueller investigation is ramping up and he could subpoena president Trump. Earnings have been excellent, but expectations are high. Profits are up 25% and revenues are up 10% year-over-year. Valuations are little stretched and there is room on the downside. Now that mega-cap tech stocks have reported, shorts will be more aggressive. Economic releases have been strong. Official PMI's, ISM manufacturing and ADP were all solid. I got the result I expected from the Fed yesterday and the market did not rally. That is a warning sign. Investors also did not take comfort knowing that tariffs have been postponed and trade negotiations are progressing. From a longer-term technical perspective a descending triangle has formed. That pattern is characterized by lower highs and a more frequent testing of horizontal support. The 200-day moving average will be challenged today. If it fails, I believe we will see the next leg lower. Swing traders can take a bearish position if the SPY trades below $261. Use the 200-day moving average as your stop on a closing basis. I have been reluctant to short an eight year rally, but technical support levels have been breached. Day traders should look for opportunities to get short this morning. Use SPY $262 as your guide. If we are above it, favor the long side. If we are below it, favor the short side. Once the momentum is established, go with the flow. A breakdown below the 200-day moving average and consecutive closes below that level would set a bearish tone for the rest of the summer. . .
Daily Bulletin Continues...
Want Full Access?
Become a MemberStart Free Trial
No credit card required.