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The market rally continues and I sense panic buying. Asset Managers that waited for a dip are scrambling to get long. Investors are also buying this breakout.
Global markets have been moving higher as central banks continue to print money. European credit concerns are subdued and they will stay that way as long as the EU moves towards a centralized banking authority.
The economic data out of China, Europe and the US has been soft this week. Empire Manufacturing missed expectations this morning and the Philly Fed will be light tomorrow. If initial claims can hold this level, the four-week moving average will continue to make new multi-year lows. The economic releases are not dampening spirits.
After a huge rally, the market should take a breather. As the momentum slows it will be more important to focus on individual stocks. Activity could slow ahead of Memorial Day.
Swing traders should focus on stocks that are in an uptrend and are breaking through horizontal resistance. Look for strong volume on these breakouts. Option traders need follow-through and these patterns tend produce sustained moves.
If the market is flat and the stock is moving higher stay in the position. If the market is up and the stock is flat, get out and look for the next opportunity. Momentum is the key to trading this market and you should be trading June options to avoid time decay.
I am also day trading. Every dip presents a buying opportunity and the market has been opening on its lows and closing on its highs. Most of the move is taking place intraday and this strategy captures most of the profit without taking overnight risk. You also don’t have exposure to time decay.
As long as the market does not get ahead of itself, this rally will continue. We want to see a nice controlled move higher without too many days where the S&P 500 is up more than 10 points.
Take profits on long call positions when the stock loses its momentum.
The news today was a little negative and buyers will be a little more passive. Look for choppy price action. A late day rally could unfold, but the gains will be relatively contained.