Market Will Run After It Tests This Level – Be Ready To Buy This Dip

Posted 9:30 AM ET - This soft patch should run its course today. I am expecting the 50-day moving average to be tested and the gap from last Friday to be filled. Ideally, the market will pullback early and bounce off of that support level. A strong close back to positive territory would set us up nicely for next week. There isn't any news to justify the recent pullback. This is profit-taking after a nice run - the market got ahead of itself. Steel tariffs are being blamed for the selling, but they are simply a convenient excuse. Trump is using them to renegotiate trade deals with other countries and concessions have already been made. Most people don't realize that our goods are heavily taxed abroad and that puts us at a competitive disadvantage. Some of the nervous jitters this week might be attributed to a likely rate hike next week. The Fed plans to raise rates at least three times this year. Price and wage inflation is contained and I do NOT believe that they will hike rates four times. The 2% inflation target was hit for the first time in a decade and Fed officials are not going to panic. I am expecting a balanced statement next week that leans towards two more hikes this year. It will include an inflation caveat. Economic growth is robust. ISM manufacturing, ISM services and the employment reports were all excellent last week. The S&P 500 is trading at a forward P/E of 17. That is at the upper end of the range, but not in "bubble" territory. Stocks will grow into their valuations and profits are expected to grow 17% this year. Interest rates are still near historic lows making stocks attractive relative to bonds. Yields have a long way to go before they will impede economic growth. The initial reaction to higher interest rates is typically negative and we are seeing that play out right now. Strong economic growth and tame inflation will calm nerves over time. This is the beginning of an incredible cycle. Swing traders should remain long calls if the SPY closes above the 50-day MA. I'm expecting that level to be tested intraday so don't panic. Once the market bounces it will recover and the next leg of this rally will begin. I still believe we will challenge the all-time high in the next month or so. Day traders need to let the market come in this morning. Watch for growing support as the 50-day MA is tested. I don't believe we will spend much time at that level. Once support is established, look for opportunities to get long. We need to weather this squall and it will pass this week. Stay long. . .

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