The S&P continues to drift higher and all three indexes made new contract highs this morning. This week should be viewed as critical for the stock market as we enter the ever so vital earnings week, Goldman Sacks and Morgan Stanley reported this morning. Looking at the numbers, both beat expectations, but Goldman is currently down $4.50 and Morgan Stanley is up .98 cents. Looking at price action today, the S&P is currently trading in a $3.50 range with a high of 2557 and a low of 2553.75. Seeing these very narrow ranges early in the week really doesn’t provide traders many opportunities, as volatility remains very subdued and needs to pick to generate any type of trading recommendations. The headlines remain the same for the market as a constant bid remains on hope of tax reform. Although the window is starting to close, there seems to be the belief that congress can get something done before year’s end. Other noteworthy events that happened overnight, a prominent North Korean official stated that he believes a nuclear war is imminent with the US. One would think the stock market would show fear, but after numerous ballistic missile launches, continued hostile rhetoric from North Korea, the stock market seems to ignore all negative headlines and continues to climb the wall of worry. It’s been over a year since we have seen a correction of more than 3%, so my belief is that we are overdue, but trying to pick a top is nearly impossible. My best guess for a correction in the stock market will come from a rapid rise in rates. Yesterday we saw the two year yield make a new high for the move which is a good indicator that rates are on the rise and could actually be the catalysis to a near term stock market correction. Trying to pick a high in the stock market has been a losing proposition in the last year, so selling at these levels regardless of extreme overbought levels is very difficult if not impossible.
Dec ’17 Emini S&P Daily Chart