April 30, 2018
Posted 9:30 AM ET - Last week the market bounced on better-than-expected earnings from mega cap tech stocks. The NASDAQ 100 is above its 100-day moving average and that support level needs to hold. The political news has settled down temporarily and the focus is on profits. There is another potential speed bump this week and swing traders should on the sidelines. The FOMC will release its statement Wednesday. 10-year U.S. Treasury bond yields have been flirting with the 3% level the last two weeks. That psychological barrier needs to stay intact for the market to move higher this week. If the Fed stays true to its plan (two more rate hikes this year) the market will grind higher. Any hint that tightening will accelerate will spook investors. Inflation (wage and price) has been moderate and the Fed has breathing room. I believe the statement will be market friendly, but I'm not confident enough to get long before the release. By the end of the week the majority of companies in the S&P 500 will have reported. Valuations are little stretched and the expectations are high. Guidance needs to be strong for stocks to tread water at this level. The political winds have temporarily subsided. North Korea intends to denuclearize and that storm cloud might be parting. Trump sent a trade negotiation team to China (Thursday and Friday meetings). A deal will take time and the mudslinging has ended. Market technical support levels should solidify and a possible trade war with the world’s second largest economy is the biggest current threat. An agreement with China would also put pressure on Mexico to get a NAFTA deal done. Trump wants them to secure the south side of the border before he signs an agreement. The Iran nuclear deal needs to be addressed by May 12th. Given the dialogue with Macron last week it is possible that the current agreement will be revised to include some of Trump's demands. The EU seems to favor this solution. I don't like spending this much time on political news, but it is driving the market. Economic data has been strong. China's PMI was better than expected. Swing traders should remain on the sidelines. Market volatility is starting to subside. Valuations are little stretched so there is room on the downside. Stocks need to spend time at this level and some of the background noise needs to be resolved. Day traders should use the first hour range as a guide. Let the momentum establish itself and go with the flow. I am going to be focused on post-earnings trades. Option Stalker has been nailing a particular pattern and we have been buying weekly options. This strategy keeps our overnight risk to a minimum. I believe the political news will be minimal this week and the FOMC statement should be dovish. The market should be able to advance, but I'm not confident enough to take overnight positions. . .
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