Market Will Grow Impatient With “The Swamp” – Fed Could Spark Profit Taking

Posted 9:00 AM ET - Yesterday the market opened at an all-time high and it spent the entire day drifting lower. By the close the S&P 500 was in negative territory. Tech is lifting the market and we need leadership from other sectors. The biggest tech companies have announced and the excitement will wane. Financials have yet to catch a bid and energy stocks have yet to show signs of life. The healthcare sector is flat as Congress works on a new bill. Basic materials have been drifting lower and a soft patch in China's economic data will weigh on this sector (IP/retail sales/GDP Monday). The market rally has been largely fueled by tech and there isn't any other leadership. As I mentioned yesterday Global Asset Managers have their lowest exposure to the US in nine years and the Wall Street Journal reported $22 billion in outflows during the last six weeks. There is plenty of mudslinging in DC after the firing of the FBI director. The bottom line is that investors will grow impatient with “the swamp” as tax reform gets delayed. The Fed is likely to hike rates in June. The recent market rally has provided a window of opportunity. Economic conditions are solid, but not robust. A third rate hike in six months will cause some Asset Managers to take profits (risk off). I believe that there are plenty of potential speed bumps and anyone of them could spark selling. The market needs to go retrace and fill in the gaps. Swing traders should stay sidelined until we see a pullback. I don't like shorting the market near an all-time high so I don't advise buying puts. Option implied volatilities are very low and I also don't like selling out of the money call credit spreads. Cash is King. When we do get a retracement that fills in the gaps there will be an opportunity to sell out of the money bullish put spreads. Day traders need to be careful in these light volume conditions. The market dripped lower in lackluster trading Tuesday. Support is at SPY $239. As long as we are above it I will favor the long side knowing that resistance at the all-time high will be stiff. If we are below SPY $239 I will favor the short side. Watch for signs of weakness in the tech sector (QQQ vs SPY). If these stocks start to falter the market will decline. There aren't any other sectors to pick up the slack. Also watch for late day selling - that is another warning sign. . .

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