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These 2 Events Will Determine Market Direction This Week

Posted by Pete Stolcers on April 29

Posted 9:30 AM ET – Last week the market inched its way to a new all-time high. Good earnings set the tone and much better than expected growth in Q1 attracted buyers. Stocks are at the upper end of their valuation range and the headwinds are blowing.

Mega cap tech stocks have accounted for much of the market rally in the last year. Buyers are engaged until they all report. Google will report after the close today and Apple will report after the close Tuesday. Stocks have been able to tread water, but most sectors are not moving higher. The market needs help from financials, industrials and energy. Tech can’t do it alone and dismal smartphone sales from Samsung could be a warning for Apple investors. Stocks are trading at a forward P/E of 16 and that is at the upper end of the valuation range. Intel tumbled 10% last week and soft guidance has far-reaching implications for the tech sector.

Domestic economic growth has been strong, but the rest of the world has been struggling. Japan’s economy could slip into contraction this quarter and the EU is barely keeping its head above water. An uptick in China’s activity has buyers hoping that the soft patch has run its course. This morning we learned that industrial profits in China increased in March. They will report their official PMI this week and that will be an important number.

Trade negotiations with China are going well and we could see a deal in the next few weeks.
In my opinion Apple and China’s PMI will determine market direction this week.

The FOMC will release its statement Wednesday. It should be very dovish and some officials are even suggesting a rate cut if inflation stays below 1.5%.

Swing traders are in cash. Towards the back end of this week we could see some selling if Apple disappoints. Once mega cap tech stocks are out-of-the-way, shorts will be more aggressive. I am not looking for a major market decline, just a dip. I want to see how aggressive buyers are at this level and the dip will provide valuable information. I believe the market was ready to drop Friday after Intel’s results, but Q1 GDP (3.2%) saved the day. I want to see earnings from AAPL and I want to see China’s PMI. If both numbers are good, I will join the party.

Day traders should wait for an early dip. Once support is established – buy. We’ve seen the bid get tested just about every day and bullish markets have a tendency to open on the low and close on the high. We have been trading post earnings patterns in the chat room and we are using Option Stalker searches to find these plays.
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