The Bulls may need a little rest.

There is no doubt about the strength of the Bulls and their dominance of the current market rally.  However, with such a big move all at once, the Bulls may need a little rest and are perhaps stretched thin.  A sideways move or even a slight pullback would not be out of the question and would technically be healthy for the market.  Allowing the moving averages some time to catch up and provide some price support.  Unfortunately, we still have that unstable dictator out there shooting off his mouth.  Yesterday stronger sanctions were passed, but he has already threatened retaliation and defiance as a result.  The old saying that one rotten apple spoils the entire barrel seems to apply here.  The Bulls are strong, but the North Korean rotten apple could spoil a perfectly good bull run.

On the Calendar

The hump day Economic Calendar begins with a couple of important reports.  First at 8:30 AM Eastern we get a reading of the PMI which has been among the weakest economic numbers.  As a result of Hurricane Harvey, the forecasters see a rebound to 0.3% gain vs. a 0.1% last month.  Next months report will see the effects of Irma.  Then at 10:30 AM we will get a reading on the EIA Petroleum Status Report.  Although they don’t forecast this number, many are expecting a sharp decline in supplies due to Hurricane Harvey.  At 2:00 PM is the Treasury Budget which consensus for August expects our government over spent by 115 billion.  However, this number is unlikely to move the markets.

On the Earnings Calendar, we have 34 companies reporting results today.  I don’t see any potential market movers, but please make sure you’re checking your account.  Suprisees here can be very costly!

Action Plan

New record high closes in DIA, SPY and QQQ’s were printed yesterday as the Bulls continue their show of strength.  Currently, the indexes appear to be slightly overbought in the short term.  At a minimum a rest is likely, but I would not rule out the possibility of a minor pullback.  The momentum of the current rally was very strong, and I would not be at all surprised to more record levels created before the end of the week.  Of course, that will depend on whether or not North Korea lights up another missile in defiance of newly imposed sanctions.

Currently, the Dow futures are pointing to a slightly lower open, but that could easily change.  With the market looking a bit stretched my plan for today will be to focus on current positions.  If the market happens to move lower, I may look to take some profits.

Trade Wisely,

Doug