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China’s Growth Back On Track - Key To Market Rally

Posted by Pete Stolcers on April 17

Posted 9:30 AM ET – As the market inches higher we will raise our safety net. Earnings season has started and the results so far have been good. China’s numbers suggest that conditions are gradually improving and stocks are up before the open this morning.

Banks have been reporting good numbers and higher interest rates are helping. This week’s earnings releases are dominated by the financial sector and it is the key to the next leg of this rally. Netflix is up slightly after announcing and IBM is down after cloud computing revenues missed. Stocks are trading at the upper end of their valuation range and good news is priced in. The market bid should remain strong for two more weeks.

China’s GDP grew 6.4% in the first quarter (.1% better than expected). Industrial production was up 8.5% (versus 5.9% expected) and retail sales increased 8.7% (versus 8.4% expected). Fiscal and monetary stimulus seems to be taking root. China is the global growth engine and it needs to offset weakness in Europe and Japan (both will report flash PMI’s tomorrow). Germany slashed its growth outlook for 2019 to .5%.

US/China trade negotiations are progressing and we could see a deal in the next few weeks. Japan has started trade negotiations with the US and Europe has agreed to start.

A Fed official suggested that we might see a rate cut in 2020. Inflation is declining (disinflation) and it is below the 2% target. After being hawkish last year I don’t think the Fed will be ready to flip anytime soon. However, the talk is market friendly.

Brexit is a nonissue until September.

Swing traders are long a half position of SPY. Raise your intraday stop to $289. We are going to ride this rally as long as we can and we should see some resistance at the all-time high. In the next few weeks we will see if earnings guidance is strong enough to support current price levels.

Day traders should wait for a dip. We’ve seen a pattern where the bid is checked early in the day. Buy that dip once support is established. Intraday trading ranges are very compressed and I suggest focusing on stocks. Look for longer-term horizontal breakouts. These moves tend to be sustained and you won’t need a market tailwind.

This is a holiday shortened week and the volume will be lighter than normal.
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