Market Will Challenge All-time High On Optimistic Earnings Guidance

January 18, 2017
Author: Peter Stolcers, Founder of OneOption

Posted 9:00 AM ET - Yesterday the market had some nervous jitters to deal with after a three-day weekend. The S&P 500 is stuck in a tight trading range and I'm not going to read too much into the price action. The volume was fairly light and I consider this to be "noise". The key level to watch is support at SPY $225. As long as we close above it, focus on the long side. Financial stocks have been posting good results, but the reaction has been negative. After a strong two-month rally they are showing signs of strain and they are not able to tread water. We need these stocks to find support if the market is going to take out the all-time high in the next few weeks. Mega cap tech stocks are about to announce earnings and Netflix will post after the close. These stocks typically attract buyers and I'm expecting the market bid to improve. Trump's inauguration is getting the blame for yesterday's profit-taking, but I'm not buying it. His policies are market friendly and the media is on a blitz to discredit him. If there is anything that has the market worried, it's the Fed. Three rate hikes this year is very aggressive and we don't have the economic growth we need to support it (yet). I'm fairly confident that Janet Yellen will step down this year and that will create uncertainty. Fed officials are very divided on monetary policy and the chairman will control the vote. The first Fed meeting is in two weeks and that has investors spooked. Earnings will be in focus until then and I'm not expecting a major pullback. In fact, I believe Q1 guidance will be optimistic and the market will like the tone. Swing traders can own a few calls overnight, but don't load up. The market needs to breakout to a new all-time high and we need to see follow-through before we can aggressively get long. Day traders, focus on the long side. Make sure the rally this morning holds before you start buying. I would not be surprised to see the downside tested and we make get as low as SPY $225.50. If support is broken you need to shift to the short side (I'm not expecting this). I think we will chop around for the first hour and the bid will gradually grow. Once we take out the first hour high, we can get more aggressive with long positions and we can lean on that first hour high as our stop for day trades. The market is in a tight range and we are just coming off of a three-day weekend. Trading volumes are light and we can't read too much into the day-to-day price movement. Make sure support at SPY $225 is intact and buy dips. The next two weeks should be bullish and I expect the market to make a new all-time high. . . image

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