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Market Will Strengthen Next Week - Buy the Dip or the Breakout

Posted by Pete Stolcers on October 12, 2017

Posted 9:00 AM ET – The market is trapped in a tight range just below the all-time high. Earnings season should attract buyers, but I still fear that we are in for a “nasty” day before we breakout. That drop and rebound will slingshot us through.

The market climbs a wall of worry and there are plenty of negative news items circulating (a close vote on budget resolution, renegotiating the Iran nuclear deal, reflation, unlikely passage of a tax cut…). One week from today marks the 30th anniversary of Black Monday (1987 crash). I was just getting started in the business and it is something I’ll never forget.

The Fed minutes were more dovish than expected yesterday. That is good for the market.

Earnings season has kicked off and banks will dominate the scene the next few days. They have run up in recent weeks and there is room for profit-taking. This sector could weigh on the market.

Swing traders should be long November and December calls. Know that you will probably take some heat in the next week. I don’t know when it will come, but bullish speculators need to be flushed out. For those of you who are still on the sidelines this will be a good entry point. The dip will not last long. I am long some calls, but my positions are relatively small. I will buy on a dip and if I don’t get one I will buy the breakout.

Day traders need to be cautious. The market has been making overnight moves and it flat lines intraday. A Financial Times article mentioned that intraday volatility is down 49% year to date. I am making most of my money swing trading. This forces me to take more overnight risk than I would like, but there is no movement during the day. If we get a day where we take out the first hour high/low, you can get a little more aggressive. Down opens are also much better because you can quickly identify stocks with relative strength. I prefer to trade from the long side. I have not been day trading much on up opens.

Earnings season will crank up next week and that will strengthen the bid. Watch banks today.

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