February 22, 2018
Posted 9:30 AM ET - In my comments yesterday I said that the FOMC minutes could spark selling and they did. Fed officials still plan to hike three times this year and the market did not like the news. Most analysts are expecting three rate hikes so this is nothing new. Don't trust the early rally. We need to probe for support before the next leg higher and start. The SPY needs to fill-in the gap at $269.60 and it should do that this morning. The futures did fill in the gap overnight. Once support is established buyers will step in. The initial reaction yesterday was good, but once the selling kicked in buyers pulled bids and we hit an air pocket. That was a 45 point S&P reversal and that momentum will weigh on the market early today. Earnings and guidance are fantastic. Stocks are not in bubble territory at a forward P/E of 17. Economic growth is strong and GDP will hit 5.3% in Q1. Consumers have more money due to tax cuts and wage increases. This is good for economic growth. Interest rates are near historic lows and they have far to go before they impede growth. Fed officials made their comments before the 12% correction so I’m not surprised that they were balanced (the market wanted dovish). Many Fed officials will speak today (Quarles, Dudley, Bostic and Kaplan) and tomorrow (semi-annual monetary report to Congress). We can expect a softer tone. Swing traders should stay long and use the 100-day moving average as a stop on a closing basis. I believe this wave of selling will run its course today and we will start the next leg higher on Friday. Day traders needed to wait 15 minutes after the FOMC minutes before taking a position. Once the selling started the momentum was strong. Keep an eye on TLT. As bonds go, so goes the market. Let the market come in and wait for support. Once it is established make sure the TLT is not going down and buy stocks with relative strength. The market rebound will have a number of rallies and retracements. This is a normal process and once we get above SPY $275 we should see a nice follow-through. . .
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