Choppy Trading Until Budget Extension – Then Next Leg Higher

Posted 9:30 AM ET - Gaps up to a new all-time high are dangerous especially after a big run. The market has been on a tear and it got ahead of itself yesterday. Profit-taking set in and the gains gradually disappeared. Asset Managers monitor the price action and they pull bids when the downward momentum is established. Bullish speculators are highly leveraged and they took profits. The selling was contained and the market bounced late in the day. This morning we are seeing a nice opening rally. I do NOT suggest jumping on this opening rally. We need to see if the selling pressure is still there. I expect to see some weakness early in the day. If the market gradually drifts lower in the first hour of trading you need to wait for support. If prices chop around and we make a new high after the first hour, get long. The budget will hang over the market the next few days. I believe that it will be extended into February. Any news (or rumor) of that happening will attract buyers. The price action so far this year has been extremely bullish. Earnings season is unfolding and the results have been good so far. Corporate taxes are going to fall and profits will surge. Current valuations are not over-extended. Economic releases have been strong. China will post industrial production and retail sales overnight. The results should be in line with expectations. Swing traders should maintain call positions. Expect choppy trading this week and another leg higher once politicians "kick the can". Mega cap tech stocks will report in two weeks. That typically keeps buyers engaged. I am using SPY $277 as a guide on a closing basis. Day traders should look for opportunities to buy dips. There was a nice opportunity late yesterday. The intraday range could expand as the budget looms over the market. If we get a nice rally and a compression at the high of the day, short a breakdown below that compression. If we get a nice dip and the market compresses on the low of the day, buy a breakout from that compression. I like to use five-minute charts when I day trade compressions. Trade larger size when you buy dips. This will be a choppy week and recent gains will be digested. The bid will grow and a budget extension will fuel the next leg higher as earnings season kicks into high gear. . .

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