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Market Bounce Will Continue - News Is Light So Follow Momentum

Posted by Pete Stolcers on January 8

Posted 9:30 AM ET – Yesterday the market was able to rally and we are seeing follow-through on this bounce. The news was light overnight and the S&P 500 is up 20 points before the open. The path of least resistance points higher, but caution is needed since this is only a bounce.

Friendly rhetoric from the China/US trade negotiations lifted global markets overnight. Both sides remarked that a deal might be attainable.

Earnings season is right around the corner and valuations are reasonable at a forward P/E of 14.5. We could see warnings in the next few weeks. After posting results, Oracle, FedEx and Micron lowered guidance and the stocks dropped. That might be an omen.

Global economic conditions are soft and that will eventually impact domestic activity.

The Fed has been hawkish and the “hot” wage component from Friday’s Unemployment Report will keep their foot on the brake.

Swing traders can buy a half position at SPY $255. Set a stop at $251 on an intraday basis and a target of $262. This bounce is likely to continue for another week or two. Once the momentum wanes it will be time to consider short positions.

Day traders should focus on the long side. The S&P 500 is through horizontal resistance and the momentum points higher. If the market is above the first hour high – get more aggressive with your long positions.

The news is fairly light this week and that favors the current moment.
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