Posted 9:30 AM ET – Last week the market shot higher on strong employment. This was a “Goldilocks” number and the resistance in a holiday environment was minimal. The S&P 500 is higher this morning.
Earnings season is a couple of weeks away and the market bid should remain strong. The S&P 500 is trading at a forward P/E of 24 and a current P/E of 38. These are rich by historical standards, but with low bond yields, investors are still plowing money into the market. Earnings estimates have been raised by 7.3%, the largest increase since 2002.
The economic numbers have been strong, but not incredible. ISM services came in at a robust 60, but this is the third consecutive decline.
Today the FOMC minutes will be released and traders will be watching for a more hawkish tone from the Fed.
In June $28 billion flowed into equities, the highest since 2014.
From a technical perspective, we have a breakout and follow through. Aggressive swing traders took 1/2 position in SPY last week and should set a target of SPY $440 and a stop of $430. Light volume rallies are very dangerous for swing traders that have a 3 to 4 week time horizon because these gains can quickly be stripped away. Your best strategy is to wait for a market dip if you are a longer term swing trader. It is incredibly difficult to resist temptation when the market is making new highs. I still consider this to be a low probability trading environment that is ideally suited for day traders and VERY short-term swing traders.
Day traders should expect a relatively dull day ahead of the FOMC minutes. Opening gaps up to a new high have been faded and it is best to wait for the bid to be confirmed. You do not have to chase stocks on the open. Spend the first hour looking for sectors with strength and finding stocks with heavy volume and relative strength. My goal is to find a few good stocks each day and then to focus on them.
Support is at SPY $430. Based on a measured move from the high on June 15th and the low on June 18th, resistance is at SPY $436.