The market is breaking out to a new all-time high. Asset Managers are discounting the recent economic releases and they are buying stocks ahead of earnings season.
Last year our economic activity hit a soft patch in April and traders are willing to give last week’s dismal results a “free pass”. Tomorrow’s initial jobless claims number will be very important. People typically postpone applications for unemployment benefits during a holiday and that could have been the reason for the spike in jobless claims last week (+40K). If we don’t see a decrease tomorrow, the market will pullback.
China is also important to this rally. They will post industrial production, retail sales and GDP Sunday night. Their stock market has been relatively weak and it is sitting just above the 200-day average. This could also be troublesome for this rally if the releases are soft.
Bank earnings will be released Friday (JPM and WFC). The results should be good and the expectations are high. Financials need to lead the next leg of this rally.
The President’s budget was in line with expectations. Stocks were up before the open and they were not influenced by it. The FOMC minutes were leaked before the open and the accommodative tone provided a springboard for the market.
I did not like last week’s economic releases and the impact of the sequester has not been felt yet. Conditions could easily deteriorate.
I sold my call positions and I am day trading. I have been able to catch most of the move without taking overnight risks. I need to see the initial jobless claims number tomorrow, the reaction to bank earnings on Friday and the economic releases from China Sunday night. If all of the pieces are still in place, I will buy a handful of calls. I will keep my overnight exposure small.
Buy stocks that are in an uptrend and have broken through horizontal resistance on strong volume. These moves last a few days and you should place your stops at the breakout level. If the stock can’t hold the breakout, get out and look for a stronger candidate.
From a bullish standpoint, we want to see stocks open on their lows and close their highs. This type of follow-through will validate the breakout.
Stocks look like they will keep pushing higher today.