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Market Breakout Will Fuel A Move To This Level

Posted by Pete Stolcers on January 16

Posted 9:30 AM ET – Yesterday the market broke out of a five-day compression and it was able to hold the gains. The Brexit vote did not have much of an impact and stocks are moving higher before the open. Overhead resistance is at SPY $263 and earnings season will determine if we can get through that level. The news is light and so is the volume.

Theresa May suffered a major setback and she could lose her position. Brexit supporters will try to postpone the date, but the EU is not going to jump through any hoops. The deadline is only 10 weeks away and England is back to square one. Investors don’t seem to care much and the market would take comfort if one of the largest economies rejoined the EU.

Banks have dominated the earnings headlines and the results have been mixed. Bank of America and Goldman Sachs are up this morning after announcing. Next week a number of big companies across various industries will report. At a forward P/E of 14.5 stocks are reasonably priced. Earnings warnings and guidance will determine how high the market can bounce.

Trade talks with China concluded and they were extended by a day. Most analysts view this as a positive development and they want to see a meeting in Washington scheduled this month.

The news is light. Swing traders should remain in cash. The market will try to challenge SPY $263, but resistance will be stiff. This target is only 30 S&P points away so it could happen at any time. There are still many unresolved issues (global growth, China trade talks, Brexit, the government shutdown, Fed tightening and earnings guidance) and I believe this is only a bounce. I will be looking for shorting opportunities as the market tests resistance. A drop like the one we saw at the end of 2018 has aftershocks.

Day traders should focus on the long side. Early rallies have been faded and you need to wait for that test. Sellers are always gauging the strength of the bid. Once they are confident that buyers are still engaged, the market bounces and it grinds higher. The momentum has stalled and we will see two-sided trading. Fade the extremes of the rist hour range.

The news will remain light the rest of the week and a choppy grind higher is likely. Support is at SPY $259 and resistance is at $263.
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