This Market Bounce Will Hit Resistance Soon – Raise Stops and Set Targets

Posted 9:50 AM ET - Last week the market tested support at SPY $181.60 and it bounced back above the 100-day moving average. We saw follow-through buying Wednesday and Thursday. Earnings season will kick into high gear this week and 150 S&P 500 companies will report. So far, 65% of the announcements have exceeded estimates. The strongest companies announce early in the earning cycle and optimism is decent at this stage. Corporate profits will be flat year-over-year and stocks are trading at a fairly rich forward P/E of 16. There is room for profit-taking. The economic news this week is fairly light. Flash PMI's will be released Wednesday and China will be in focus. Results will be light and this rally could hit resistance. I plan to exit some of my call positions before then. Netflix will post results after the close today. This will give us some insight on high-flying tech stocks. We will see if investors want to scoop shares of these badly beaten down stocks. Facebook will post results on Wednesday and it will be important as well. We entered long positions at an excellent price level and we hit my first target ($186.50). The next resistance level is $187.50. I am raising my stop to SPY $184.50. I still believe the next big move is down and I don't want to get cute with this bounce. Raise stops and set targets. I don't believe the market will make a new all-time high before it rolls over. The selling pressure at SPY $189 has been very heavy. The huge reversals are easy to spot on a chart, just look for the long red-bodied candles. Asset Managers are taking profits. If the market can't challenge the all-time high, it would be a sign that sellers are aggressive. I will be watching for bearish intraday reversals and late day selling. These patterns will tell me when to exit my call positions. Major earnings announcements are scheduled next week. Traders will be watching for signs of pent-up demand and sluggish numbers will no longer get a free pass. Keep your size small, protect your profits on long positions, raise stops and set targets. Five-year bull markets die hard. We need to see bona fide signs of profit-taking before we enter short positions. This bounce should run out of steam soon. Once I spot weakness, I will buy puts. I will add below $184.50 and below the 100-day moving average ($183) A good reaction from Netflix would keep the bid alive for a few more days. A bad reaction could spell trouble. . .

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