Not a terrible way to start the week with gains. For now, a trade war with China has been put on hold and stocks benefited. It was not a perfect day by any stretch of the imagination as Small Cap stocks continue to lag the broader market versus leading it. Volume was lower across the board despite the price gains. Now, we will see given the move off the lows how this market will react to overhead resistance. A few days of quiet trade would go a long way for this market overall. We’ll have our intraday setups. However, from an end-of-day view we definitely need to see this market trade quietly over the next few days. We’ll accept whatever the market wants to do here and trade accordingly. Stay the course and trade with a solid plan.
An interesting development was the 10-year Treasury note trading below 3%. Higher rates had this market initially spooked, but given where the 10-year is trading now it fears over higher rates should subside. We did hear comments noting rates are nearing a neutral state and equities reacted positively. The fears of higher rates exist as with higher rates the greater risk of suffocating the economy. For now, it appears rates are stabilizing and should provide a lift to the market.
We are just about two weeks away from another FOMC meeting where rates are expected to go up another quarter point. Odds are we see a hike on the 18th and not another one until June of 2019. It would not be a surprise to see this market experience a Santa Clause rally through year-end. Will a rally from here produce tremendous gains? Unlikely, we would see a rally produce gains we have seen in the past. A real reset is needed to produce high flying winners. For now, we are only able to take advantage of what is in front of us.
We are seeing new longs pop up from our screens and are going long. This rally very well could end badly, but we are not going to give up an opportunity on gains. As long as we remain disciplined with our approach we will succeed in the long-term. As a reminder the US markets are closed for a day of mourning on Wednesday. Let’s make today a good one.
