QQQ Ready To Make An All-time High – Buy Tech Stocks

March 30, 2017
Author: Peter Stolcers, Founder of OneOption
Author
Pete

Posted 9:00 AM ET – Yesterday the market took a little bit of a breather. It rallied 40 points off of Monday‚Äôs low so that should be expected. Stocks inched higher and we saw follow-through. The reversal this week indicates that buyers are still engaged. Trump’s tax reform is on the front burner and he will get a free pass for another month.

Major economic releases will be in focus during the next week. China’s PMI will be posted overnight and I’m expecting strong results. This should lift stocks in Asia. Europe’s growth has been improving and those PMI’s should also be solid as well.

Domestic economic growth prompted the last rate hike. ISM manufacturing, ISM services, ADP and the jobs report will be posted next week. Given the Fed’s aggressive agenda we need steady economic growth.

Consumer confidence jumped this week and that’s a good sign. Low gasoline prices should help. We are in an environment where “good news is good news”.

Oil prices have stabilized so energy stocks will not be a drag on the market.

In two weeks earnings season will kick off. Q4 earnings were good and CEOs are optimistic. We should NOT see many warnings. The market typically rallies ahead of earnings season so there will be a small tailwind.

The focus will shift away from Trump during the next few weeks. Any positive development on tax reform will attract buyers. I believe he will look for a quick tax cut that can be passed easily. This low hanging fruit will help his credibility.

Swing traders should be long calls. Use SPY $235 as your stop on a closing basis. We are keeping it pretty tight at this level and we want to see follow-through. If we get it, we will build in some cushion. If the market does not rally, we need to consider exiting our call positions because the momentum will wane and time decay will become an issue. If the market closes above SPY $236, add to call positions. Tech stocks have been strong relative to the market and I suggest focusing on those leaders. Even though the S&P 500 is well off of its high, the QQQ is very close to making a new all-time high.

Day traders should let this early wave of selling run its course. Support at SPY $235 will be tested. Use that as your guideline and favor the long side. In the event that the first hour low is breached, wait for support. Ideally, stocks will decline early and they will bounce back above $235. Next they will take out the first hour high and grind. This pattern would prompt me to be fairly aggressive. If the market has a hard time getting out of the first hour range I will reduce my size and activity.

A nice little rally today and Friday would give us a chance to sling shot through the all-time high next week. I am not currently feeling that strength, but it could surface quickly.

Favor the long side and use $235 as your guide.
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