Just a Pause or Toppiness?

Markets gapped higher Wednesday, but then drifted back toward flat the rest of the day.  At day end, the SPY gained 0.01%, the DIA lost 0.01%, and the QQQ gained 0.26%.  The VXX gained 0.82% to a still-low 13.54 and the T2122 remains in the mid-range at 49.57.

The Coronavirus story continues to grow.  China now reports 17 deaths, nearly 600 confirmed cases and it has both quarantined the city and stopped public transport in the city where it was first confirmed.  This threat is complicated by the Chinese New Year (traditional travel period) which is happening right now.  Bloomberg reports literally hundreds of millions of Chinese are expected to travel this week and in 2019 nearly 3 billion trips were taken by Chinese in the 40 days from the Lunar New Year and the Spring Festival (the period that starts this week).  And those trips are not all local.

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In the US, the main story continues to be the impeachment trial.  Still, BA also continues to make the wrong kind of news as UAL told reporters it does not expect the 737 Max to fly before the end of summer, the FAA head said there is no timeline for reapproval of that plane and BA’s new CEO told Reuters that it is shelving a new mid-market aircraft project (a $15-$20bil  project) due to the 737 Max crisis. 

However, for markets, it seems that it’s all about earnings versus lowered expectations right now.  After hours last night ASML, BKR, KMI, and RJF all reported misses.  There will also be a number of major earnings reports Thursday, with CMCSA, PG, AAL, KEY, KMB, MTB, MKC, LUV, SWK, TRV, and UNP reporting before the open.  After the close AEP, DFS, HBAN, RMD, SIVB, SWKS, TXN, VFC, INTC, and ISRG all report.   

Other major economic news is limited to Weekly Jobless Claims (8:30 am) and Oil Inventories (11 am).  Dec. Home Sales (10 am).  CNBC feels there is a small bearish risk for US Markets from the ECB rate decision due Thursday about 7:45 am.  However, the most likely scenario is that this is a non-event.

Overnight, Asian markets were mostly in the red.  In Europe, major bourses are also in the red at this point in their day.  As of 7:45 am, once again U.S. futures are pointing to an open that is flat to lower by two-tenths of a percent.

Markets are showing a little hesitance this week. Perhaps this is due to being priced for perfection at the all-time highs. Or it could be some combination of fear over Coronavirus, Impeachment, or maybe even (gasp) less than thrilling earnings. Regardless, the trend has not been broken. It just seems to be in a lull so far this week. Keep reminding yourself that we are extended, but the trend remains bullish. So, while caution is warranted, don't fight the trend. Look for long opportunities near support but don’t chase. Hedge your risks, keep taking profits on a regular basis and move your stops to protect yourself. Above all, wait for the trade to come to you...plan your trade and trade your plan.  

Ed

Swing Trade Ideas for your consideratoin and watchlist: FMC, HOMB, MYL, ABBV, UTHR, VG, URI, CDW, SHOO, SKX, CAH, ACAD. Trade smart, take profits along the way and trade your plan. Also, don't forget to check for upcoming earnings. The stocks/etfs we mention and talk about in the trading room are not recommendations to buy or sell.

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