Respect the Stop and Try To Stay Long – This Dip Should Be Shallow

January 10, 2018
Author: Peter Stolcers, Founder of OneOption

Posted 9:40 AM ET - The market has been on a tear since the beginning of the year. The S&P 500 rallied more than 60 points and we are giving some of that back this morning. It's unusual to see red before the open. Keep your stops in place and try to temper your fear. After a big leg higher we should expect some profit-taking. Bullish speculators are going to get flushed out today. The budget deadline is approaching and politicians have 10 days to find a solution. In all likelihood the budget will be extended a few more weeks and it will bump up against the debt ceiling. After a public display of negotiation yesterday (media coverage) investors should have a little more confidence that politicians will find middle ground. We witnessed the "sausage making" and I hope the transparency continues. Earnings season attracts buyers and economic data points have been strong. Both influences support this market breakout. The Fed has been dovish and that is also good. Interest rates have not been climbing and bears view a flat yield curve as a warning sign. Rumor has it that Japan and China will reduce US bond purchases. If true, this will create upward pressure on interest rates and an upward sloping curve is typically market friendly in the early stages of a recovery. Bond yields have been at historic lows for many years. "Rocket man" is playing nice in the sandbox and we probably won't see any missile testing ahead of the Olympics or during the games. Swing traders should maintain their stop at SPY $273. If we close below that level take profits. The price action yesterday was a little shaky and the bid needs to be tested. I still feel that buyers are engaged and the early selling this morning should run its course quickly. Day traders will have an opportunity to buy this dip. Make sure that support has been established and buy the futures. I believe the damage will be relatively contained and we are likely to see the low in the first hour of trading. The depth of the drop this morning will reveal the appetite for stocks. A new low after a few hours of trading would be bearish for the day Swing traders need to stay long and respect the stop. Bullish markets open on the low and close on the high. Early selling is normal and I still believe the market has more upside. Day traders need to watch for a reversal. . . image

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