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Asset Managers Have A “Recovery or Bust” Mentality - The Market Will Grind Higher

Posted by Pete Stolcers on June 17

Posted 9:30 AM ET – After testing the 200-day moving average three times in the previous few days, the market gapped higher Tuesday. News that the Fed was buying corporate bonds sparked buying and a $1 trillion infrastructure bill could be signed by Congress shortly. The Coronavirus is spreading after the nation has started to reopen, but President Trump vowed that he will not shut the country down again. This morning the S&P 500 is poised to challenge the high from yesterday. I believe that quadruple witching will fuel a rally to SPY $322.50 this week.

All that matters is that the Fed is printing money as fast as it can and that it will deploy that cash in many different ways to get the economy humming. Asset Managers are generating negative real returns when they buy bonds so they would rather lean on the safety net provided by the Fed and buy stocks. This is the only way they can generate a reasonable return and they will they have a “recovery or bust” mentality.

Stock valuations are a little “rich” and I feel that we could grind our way back to the all-time high by the end of the year if the recovery is on track. This move will be gradual and there will be plenty of speed bumps.

The Coronavirus is spreading and people need to be cautious. Social distancing and facemasks are needed. This will impede the recovery and consumer spending will gradually improve. I don’t believe we will see a massive market rally based on pent-up demand.

We are heading into a “news vacuum” and that favors the current upward momentum. Earnings season is a few weeks away.

Swing traders need to sell out of the money bullish put spreads on tech stocks. Yesterday I told you not to chase and that there would be an opportunity for you to get your trades off. After the massive gap higher yesterday, the market retraced all the way and there were opportunities to sell bullish put spreads. Tonight I will record my Weekly Swing Trading Video and I will highlight for new bullish put spreads. Now that bullish speculators have been flushed out, prices should stabilize. I would not get overly aggressive. Earnings season typically attracts buyers, but the news could be a cold splash of water when the devastation from the shutdown is revealed. Focus on tech stocks that were relatively unaffected by the virus or that prospered because of it.

Day traders need to wait for the bid to be checked this morning. Once support has been confirmed, favor the upside. Look for stocks with relative strength and make your money early. If the market makes a new high after two hours of trading and if it is above Tuesday’s high, get a little more aggressive with your longs.

Look for bullish price action the rest of the week. Quadruple witching should have a positive impact. We typically see volatility ahead of this event and we might’ve already witnessed it the first two days of the week.

Support is at SPY $308 and resistance is at $315.60.
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