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Friday’s report was published after the close Thursday.
The price action has been very sluggish the last few days. This was a very busy week and now we know that earnings season is not going to push the market above SPY $170. We’ve heard from every sector and the reaction is muted.
Economic releases will dominate the scene next week and flat results could spark a round of profit taking. ISM manufacturing/services, GDP, ADP, the FOMC, official PMI’s and the Unemployment Report will influence trading. A few months ago flat results would have been consistent with a Goldilocks economy. The Fed intends to taper and that is no longer the case. We need economic growth for this market to push higher.
End of month/beginning of the month buying will run its course and the selling pressure should build towards the end of next week. Asset Managers will not chase stocks at an all-time high when economic conditions are deteriorating The volume during the last leg of this rally has been very light and bullish speculators will get flushed out.
I suggest trading a mix of bullish and bearish positions. From the long side, I want to see stocks that are breaking through horizontal resistance after posting good results. On the bearish side, I am looking for laggard sectors (basic materials encyclicals) that have been dragged higher by this rally. After these companies post results, I want to see a breach in the uptrend or a horizontal breakdown. This balance of longs and shorts will provide an overnight hedge. Once these trades lose their momentum I will get out and look for the next opportunity.
Support at SPY $167 will be challenged and when it fails I will shift entirely to bearish positions. I believe the market will drift down to the middle of the trading range in August. Once that happens the volume will dry up and we will chop around while we wait for new information.
There are nice trading opportunities on both sides of the market. Use a hit-and-run approach and look for post-earnings opportunities.