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Ride the Rally - Use Intraday Stops - Earnings Start Friday

Posted by Pete Stolcers on April 8

Posted 9:30 AM ET – Last week the market surged through horizontal resistance and it finished 2% below its all-time high. A better than feared PMI in China sparked buying on Monday and solid domestic economic results throughout the week fueled the momentum. Earnings season will start Friday and banks will set the tone. Good news is priced into the market and dark clouds are being ignored.

ISM manufacturing was better than expected, but ISM services, durable goods, retail sales and ADP were light. The jobs report on Friday rebounded nicely, proving that February was a fluke. As long as domestic activity remains strong, investors will support current price levels.

Global economic conditions are soft and one good number from China will not turn that around. The Chinese have done all they can in the last year to stimulate growth and many traders feel that those efforts are bearing fruit. Every major economy in the world is seeing growth decelerate and this is the greatest market threat.

There have not been many earnings warnings and that is positive. Stocks are trading at the upper end of their valuation range and this could be the first quarter of contracting profits since 2016.

England will either leave without a deal or not leave it all according to Theresa May. She will meet with EU leaders Wednesday night and she is under pressure to present a new plan. Parliament can’t agree on anything and this could be a train wreck on Friday (April 12th). The market is pricing in another delay. Europe is fed up with this process and they will take a hard line.

Trade talks with China seem to be progressing well. According to officials, 90% of the plan is in place and they are negotiating implementation and enforcement. Trump said that he will maintain current tariffs as an insurance policy – I don’t believe China will be happy about that.

Swing traders are long the SPY around the $285.50 level. Maintain an intraday stop at $285. If the market continues higher we will continue to raise the safety net. I’m very skeptical of this rally and if we are shaken out of our long position, we are likely to go short.

Day traders should buy dips after support is established. We have seen late day rallies the last two weeks and that should continue into earnings announcements.

The path of least resistance points higher and the bid should be strong until Apple reports in a few weeks.
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