Market Down – Trump Is Not the Reason – Profit Taking Ahead

Posted 9:30 AM - This morning the market is retreating and investors are nervous. The media is overjoyed to blame the profit-taking on problems in the White House. From my perspective this is a bunch of BS. We were already seeing signs of strain and this is a convenient excuse. As I've been pointing out during the last week Global Asset Managers have been pulling money out of US equities for over a month. The rally has been narrowly confined to tech stocks and that is not a healthy rally. The breakout yesterday lured in bullish speculators and they will be running for the exits this morning. The threat of a rate hike in June will keep a lid on stocks. Economic growth is moderating and the Fed wants to take advantage of the recent market rally. If stocks tread water until the June FOMC, we will see tightening. If the market drops before then and fear is elevated they might reconsider. Earnings season is winding down and the news was good. The healthcare bill will get volleyed from the Senate to the House and tax reform will be delayed. I've been mentioning in my comments that any surprise favors the downside. I was not going to "get cute" and try to capture the last few points of this rally. The downside risk far outweighed the benefits. I hope you took my advice. Swing traders can buy July at the money SPY puts if the market closes below $238. Use $241 as your stop and the 100 day MA is our target. I suggest taking a half position. The market is still in an uptrend and I consider shorting to be relatively dangerous. Passive traders should stay in cash and wait for support to be established. Day traders need to be patient on the open. The news does not justify the decline and I believe we will see a bounce this morning. Support is at $238 and that should hold. The next level of support is $236.50. Resistance is at $239 and this is a good pivot point. If the market is above it, favor the long side and buy tech.. If the market is below $239 favor the short side. A new market low after two hours of trading would be bearish. Late day selling and a close below $238 would suggest follow-through tomorrow. Ignore the headlines and know that we are overdue for a round of profit-taking. The market needs to fill-in the recent gaps. Once the dust settles there will be some excellent opportunities to sell out of the money bullish put spreads. This could be the beginning stage a nice dip so don't be early this strategy. . .

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