Posted 9:30 AM ET – Yesterday the S&P 500 made a new all-time high on light volume. The economic data has been strong, but the market has not been able to advance. This is historically a seasonally weak period for stocks and you should reduce your exposure. Profit taking can set in at any time and there is not a catalyst.
The Delta variant is spreading quickly and countries/states are imposing new restrictions. I personally know of instances where vaccinated people have become ill. In Illinois the positivity rate is at 5%. That is the highest level in 6 months and it continues to increase. We are seeing this increase nationwide and the market does not seem overly concerned… yet.
China’s market decline is a red flag and it is in bear market territory. That will not improve anytime soon as China cracks down on tech companies.
ISM manufacturing was a little light this week and ISM services was strong (64.1). ADP was light, but the jobs report today showed that 943,000 jobs were created in July. I don’t trust the government’s employment numbers and I consider ADP to be more reliable. Hourly wages increased .4% and that is a little high, but not so high that it will spark inflation concerns.
Earnings season climaxed this week. The results were excellent as expected, but the market seems to be running out of gas.
I will not enter longer term swing trades until I see a sustained market decline lasts for more than a week. I view this as a low probability trading environment for longer term swing trades. We are heading into the slowest time of the year and the news will be extremely light. I expect to see a low volume rally that is vulnerable to swift rounds of profit taking.
The best day trading set ups are a gap down that finds support in the first 45 minutes of trading and a gap up that retraces and fills in some of the gap. These two patterns give us time to identify relative strength early in the day and they provide excellent entry points for longs. We want to join the upward momentum and you can be more aggressive on these days. The worst day trading set-up is a gap and go. It is dangerous to chase stocks at the all-time high and you risk having the rug pulled out at any time. A flat open inside of the prior day’s range where the high of the day and the low of the day are established in the first hour is also poor a trading set-up. This is a time to reduce your trade size and trade count. Be patient and be selective.
Support is at SPY $438 and resistance is at the all-time high.
I will be taking the next week off and I will not be posting pre-open market comments. Error on the side of caution and if possible, take some time off and recharge your battery during this lull.