New Market High – No Speed Bumps This Week – Look For Grind Higher

July 12, 2016
Author: Peter Stolcers, Founder of OneOption

Posted 9:20 AM ET - Yesterday the market made a new all-time high. It's been 18 months since I've been able to say that. The momentum points upward and stocks should be able to grind higher in this light news environment. Alcoa posted better-than-expected results and earnings season has officially begun. J.P. Morgan will post results on Thursday, but Q2 really will kick off until next week. I am expecting meager profit growth year-over-year. Once mega cap tech stocks report, the air will be let out of the balloon. Japan is launching a new stimulus program and Asian stocks are pushing higher. Central banks around the world remain dovish and that includes the Fed. US job growth is strong enough to avoid a recession, but not hot enough to justify a rate hike (Goldilocks). I believe the market will be able to grind higher through the FOMC statement on July 27. August is typically a weak month and the market is set up for a pullback. Emerging market credit concerns (Italy, Russia and Brazil) will surface. Brexit will weigh on Europe and fear of a September Fed rate hike will build. Until then, expect a gradual grind higher. This is a nice breakout and you can start scaling into call positions. Option IVs are cheap and this is a buyer’s market. I suggest focusing on stocks that are rallying off of a base. They have more upside potential and they don't need a stiff tailwind to fuel the move. Stocks that are breaking out to a new all-time high often need help from the market to sustain the move. I am not buying calls. I will wait for a pullback so that I can gauge the strength of the market bid. I know that I might miss some nice trades, but I won't be exposed to a market reversal. If this breakout holds for a week, I will start to embrace it. There aren't any news items that pose a threat. Many Asset Managers are under allocated and they are playing catch-up. I've been doing great on my day trades. I will patiently wait for the first 30 minutes. During that time I will search for relative strength. If the market retraces during that time I will have a better entry point and I will feel better about the stocks I'm buying. All I need is three or four good trades to make my day. This tactic produced 8 winners and no losers yesterday. Opening gaps to the upside are difficult to trade and extra caution is required. All stocks rally with the market and many are fakes. As soon as the market momentum stalls, they retrace and they never recover. This can result in a number of losses and many day traders are tempted to hold the positions overnight. Don't fall into this trap. You might miss some good trades by not trading the open, but you won’t get stuck with a bunch of losers. The quality of the trades will be much higher after the first half hour and your win percentage will be very high. If the market gaps down we can be more aggressive on those days. Relative strength is much easier to spot and we simply have to wait for market support before we start scooping stocks. Be patient and day trade from the long side. This rally should grind higher this week and you can start scaling into call positions. . . image

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