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Banks Will Lead The Market Breakout - Earnings Start This Week

Posted by Pete Stolcers on January 11

Posted 9:00 AM ET – The market is compressing near the all-time high and I view that as bullish. We’ve seen big gains since Trump was elected and those gains need to consolidate. With each passing day the bid will grow and eventually we will see the next leg higher. Earnings guidance should be upbeat and I expect to see a breakout soon.

The promise of lower corporate taxes and lower government regulation will spark business investment. That will stimulate growth. A repatriation tax break could bring trillions of dollars back into the US.

Global economic activity is gradually improving.

Domestic jobs numbers (ADP and BLS) last week were a little soft, but ISM manufacturing and ISM services were robust.

If the market was treading on thin ice, the December FOMC meeting would have toppled the Trump rally. The Fed expects to raise rates three times in 2017 and that is much more aggressive than analysts had projected. The market shouldered this news and that is a sign of strength.

In order for the market to move higher, we need to see strong economic growth.

We don’t know how successful Trump will be in his efforts and we don’t know if the opposition will be stiff. Good news is priced in and progress is the key.

In the short term, we are set up for a nice breakout. January is typically a bullish month and momentum favors the upside.

Swing traders can hold a few overnight call positions, but don’t go overboard. We need the breakout and we need follow-through before we can add to positions.

The day trading environment has been phenomenal. Stocks that make strong moves early have seen steady buying throughout the day. We have been able to catch some great runners in the chat room. Oil is trading a little higher and that will provide a small tailwind.

The S&P is down slightly before the open and that will make it easier to spot relative strength. I will start scaling into long positions early in the day and I will add if the market is able to get through the first hour high.

Earnings season will crank up in the next week. Big banks report early and even if the news is negative, they will find support. Interest rates are headed higher this year and that will keep a bid under these stocks. As earnings season unfolds I’m expecting to see a nice little rally the takes us to a new high.

Watch for choppy trading during the next few days and look for opportunities to get long.
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