Market Down Ahead of Trump Speak – Watch For Early Low and Bounce

Posted 9:00 AM ET - This morning the market is going to give back the gains from this week. The S&P 500 is down 11 points before the open. There is not any overnight news to justify the move. We've moved the stop up to SPY $235 on a closing basis. Let the day unfold and take profits if we close below that level. Bullish speculators have piled into this rally and they will be flushed out this morning. That first wave of selling should run its course in a few hours. We will also see some profit-taking, but I'm not expecting this to last more than a few days (if that). The macro backdrop remains bullish for stocks. Lower corporate taxes and reduced business regulations will be good for profits. BAT (boarder adjustment tax) will impact international trade if it is passed and that has investors a little spooked. Infrastructure spending would be good for economic growth. It would also prompt a Fed rate hike. International economic growth is improving and global credit risks are low. We knew that Trump's policies would be controversial and that market volatility would increase. He will speak this morning at CPAC (9:00 AM Eastern time) and his unpredictable nature makes investors nervous. He will also deliver his State of the Union address next week. I still believe that the positives far outweigh the negatives and that we still have two more months of bullish price action. After that the threat of a rate hike will weigh on the market. By then we will know how successful Trump is in executing his game plan and we will know if economic growth is strong enough to shoulder the rate hike. The first wave of selling can be pretty nasty as "weak hands" get flushed out. Look for most of the damage to be done in the first two hours of trading. Buyers will nibble and the market will try to claw its way back the rest of the day. Swing traders need to have stops based on technical support levels for each individual stock. They also need to stop out on all long positions if the SPY closes below $235. Day traders need to be very patient this morning. It could take a few hours for support to be established. I still prefer trading from the long side. The market broke through major horizontal resistance a few weeks ago and we have seen follow-through buying. The momentum points higher and I do not want to short this market. After "Trump speak", I believe the lows will be in and the market will bounce. If we continue to drift lower after the first few hours, I will stay sidelined. I thought we might hit a small speed bump this week, but I expected it after the FOMC minutes. Down days are good because they help us gauge the strength of the bid. Down opens make it easy to spot relative strength and they have been my most profitable days this year. Stay calm, watch the price action and know that we are simply giving back the gains from this week. . .

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