Earnings Rally Is Just A Bounce – I Am Not Buying Until I See This

Posted 9:30 AM ET - The market tested the 200-day moving average this week and it instantly bounced. That reversal sparked additional buying and strong earnings reports from mega cap tech stocks added fuel to the fire. Amazon, Intel, Microsoft and Bidu are all up this morning after posting big numbers. The NASDAQ 100 is well above its 100-day moving average. As good as this bounce feels, the price action has been tenuous. Earnings season is in full bloom. Tech stocks have beaten expectations and rich valuations have not deterred buyers. Industrials have been struggling due to higher input costs. Earnings season typically sparks buying and the appetite for stocks is tepid. Investor confidence has been shaken the last two months. I believe this earnings rally is nothing more than a bounce. Global economic news has been excellent and growth is strong. The political news has temporarily subsided although there are some dark clouds on the horizon. North Korea and South Korea signed a denuclearization agreement. That is very positive. Trump has sent a US delegation to China to negotiate a trade deal next week. A deal would be very positive for the market. The rhetoric has waned and that is also giving the market a chance to come up for air. Steel and aluminum tariffs could go into effect in the EU in a month and NAFTA hinges on border security. The Iran nuclear deal could also be scrapped in coming weeks. These headwinds have been driving the market action the last two months. They have settled down, but they can storm back at any time. US 10-year Treasuries are on a major support level and yields hit 3% for the first time in four years. By historical standards interest rates are still low, but the psychological effect of rising interest rates is weighing on the market. Swing traders should remain in cash. The S&P 500 needs to close above the 100-day moving average and stay above it for at least a week before I buy. The price action has been unpredictable because it is driven by political events. In time the dust will settle and we will have a clear direction. Support is at the 200-day moving average and resistance is at the 100-day moving average. Day traders are in the sweet spot. Intraday volatility is exceptional and the momentum is strong during the day. Use the first hour range as your guide and go with the flow. The rally today needs to hold. This was a busy week of earnings releases, but next week will be even bigger. . .

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