February 5, 2018
Posted 9:30 AM ET - I posted extensive market comments Sunday. Please make sure to read them. The last two days we've seen heavy selling. Bullish speculators are getting flushed out and Asset Managers have pulled bids. They will not buy until support is established. The S&P 500 is down 20 points overnight and the selling should climax this morning. I'm looking for a sharp reversal off of the low and a close in positive territory. This type of price action would result in a capitulation low and it would present a buying opportunity. As you know from my weekend comments I am very bullish. The market got ahead of itself and some of the froth has been taken out. Interest rates are low by historical standards and the Fed signaled three rate hikes this year (not four). They had the wage growth statistics before the statement and they are fully aware of conditions. Economic growth is strong and the jobs number was good. Earnings season will climax this week and the results have been excellent. Guidance is off the charts. The debt ceiling/budget will be extended this week. That will provide relief. Immigration is being negotiated and both parties will want to give it more time to see if a deal can be reached. A government shutdown would disrupt the process and Democrats will be blamed. Swing traders need to be ready to jump in. Wait for the SPY to establish a low. If it trades $2.00 above that low - buy calls. So if the low is SPY $271 you would place a buy stop at SPY $273. A reversal off of that low would present an excellent entry point. Buy April options and give yourself time. Know that the low might be tested and that you might take some heat. Use a trade below the entry as your stop. Day traders should prepare for a busy day. Let the market come in and wait for the capitulation low. Once it is in trade from the long side. Focus on stocks that have posted strong earnings and that are above a horizontal breakout. It is natural for stocks that have broken out to retrace and to test the horizontal breakout. Ideally the stock finds support before that level is even tested. This would be a sign of strength and the stock will be ready to run. This is the shakeout we've been waiting for. Wait for the low and a meaningful bounce. Get long and be prepared to take a little heat. . .
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