The market has been consolidating after the big run a few weeks ago. Stocks are within striking distance of a new all-time high and they are gathering strength.
The macro backdrop is very bullish. Last week, the Fed said that economic growth is moderate and they will maintain bond purchases. I believe they will postpone tapering until Janet Yellen takes office and the debt ceiling is extended (2014).
ADP, retail sales, Chicago PMI, ISM manufacturing and China’s manufacturing PMI all came in better-than-expected. This morning, official PMI’s in Europe and China were better than expected. The jobs report on Friday won’t matter much (125,000 estimate). If the number is better than expected it will instill confidence. If the number is light it will get a free pass because of the government shutdown.
Earnings season is progressing nicely. Analysts are maintaining their earnings projections on the S&P 500 for Q3. Cash flows are at record levels and companies are using that money to buy back shares.
The yield on 10-year US Treasuries is below the dividend yield on the S&P 500. Stocks are still attractively valued relative to bonds.
Global credit concerns are low. This dark cloud plagued the market for a number of years and it has not resurfaced.
This is a seasonally bullish period for the market. Asset Managers don’t want to miss a year-end rally and the bid will strengthen with each passing day.
I don’t see any speed bumps this week. The volume is light and that needs to improve.
I was shaken out of my call positions last Friday when the SPY traded below SPY $176. I was able to scratch the trades. I didn’t want to risk losing money over the weekend. The momentum has stalled and I will wait for it to return.
Look for opportunities to get long. The market did not pullback last week and it probably won’t. Transportation and basic materials look strong. Other cyclical stocks are also catching a bid.
I will day trade from the long side, but I don’t want to buy calls unless I see the momentum return. We need to break through SPY $177 on good volume. If that happens, buy calls. I suggest going out to December. November options will be fighting time decay and this market might not get its mojo back in the next week.
Look for strong uptrends, a period of consolidation and a breakout through horizontal resistance. These will be your best plays.
After a nice early pop, the market has fallen into a tight range. This looks like it might be another quiet day.