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Fed Could Spoil the Party Today - No Hint of Sept Rate Cut

Posted by Pete Stolcers on July 31

Posted 9:30 AM ET – The market is still within striking distance of the all-time high. Apple posted a strong number and its breakout this morning will fuel the tech sector. Now that all of the mega cap tech stocks have reported I expect to see some profit-taking. The overnight news was generally positive and traders will be holding their breath for the FOMC statement this afternoon.

Apple is making a new all-time high and the comments regarding China were of particular interest. Tim Cook said that they are seeing year-over-year improvement and that stimulus programs seem to be taking root. Tech giants have struggled after reporting and this earnings release swings the needle back to neutral. At a forward P/E of 17, good news is priced in. There have not been many tariff related warnings and that is positive. The back half of earnings season will be lackluster and some of the excitement will wane.

China’s economic data was in line. Manufacturing is still in contraction territory (49.7) and services down-ticked slightly. Europe’s GDP grew 1.1% year-over-year and that is slightly better-than-expected (1%). Germany’s retail sales for June increased 3.5% and that is better than expected (.5%).

ADP reported that 156,000 new jobs were created in the private sector during the month of July. That is slightly better than the 150,000 that was expected and it is a “Goldilocks number” (not too hot and not too cold). ISM manufacturing will be posted 30 minutes after the open.

The FOMC statement will be released this afternoon. A quarter-point rate cut is expected and the Fed will deliver. The market is addicted to “easy money” and another rate cut in September is expected. Solid domestic economic growth, stable global growth (at low levels) and record highs for the stock market give the Fed plenty of breathing room. I don’t believe they are ready to cut rates in September and the reaction could be negative.

Swing traders should still remain in cash. I expected market strength to this point, but the downside risk is elevated. Now that the strongest companies have reported we are likely to see profit-taking. The next two days will be busy with major economic releases. This is the final push of activity before the summer doldrums. Earnings releases climaxed and politicians are in recess. The news will completely dry up in the next few weeks and the trading volume will drop. As long as US/China trade negotiations continue (no progress needed) the market will be satisfied. A hard exit for England is not weighing on the market because there are still three months left until the deadline.

Day traders should wait for the bid to be tested. Gaps higher have been faded early. Once support is established buy stocks with relative strength. We are particularly focused on strong earnings breakouts in the chat room. Option Stalker helps us zero in on these trades. After the first two hours of trading we will be “dead till the Fed”. After the announcement wait 15 minutes and follow the trend. If my suspicions are correct the reaction will be negative.

Enjoy the action the next two days and plan to take time off in August.
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