A light round of profit taking flushed bullish speculators out of the market a few weeks ago. Prices are stabilizing and seasonal weakness will run its course in a couple of weeks. The bid is strengthening and Asset Managers will try to front run a year-end rally. Any dip from this point on will be brief and shallow.
Air strikes in Syria appear to be a 50-50 proposition. Many analysts believe we waited too long and chemical weapons have been moved to schools, churches and hospitals. The Secretary of State said that Syria can avoid an air strike by handing over all of its chemical weapons now. The market won’t be too concerned about a Syrian air strike, but it would prefer no action.
China’s trade numbers were bullish and tomorrow they will post industrial production and retail sales. Economic conditions are improving in Asia and Europe.
US economic conditions are strong. The jobs numbers last week will keep the Fed on track to taper.
The market will accept higher interest rates as long as they are accompanied by economic growth. Last week the big three automakers announced that August sales were up 17%. They do not see any letdown and guidance was strong. They are on pace to sell 16 million cars this year (pre-crisis level).
Corporate profit margins are healthy and any uptick in demand will go straight to the bottom line. Companies are using cash to buy back shares and we had two big M&A deals last week.
Asset Managers know that these little storm clouds are passing. The debt ceiling won’t be an issue until it is right on our doorstep and the market will assume that both parties will strike a last-minute deal.
The bid will strengthen and dips will be shallow and brief from this point on. Asset Managers will try to buy ahead of the year-end rally.
I am long calls and I am buying bullish breakouts on an intraday basis. I believe we have a very strong week ahead and the SPY will get back above resistance at $167.
Get long this week and hold positions into the FOMC meeting on September 19th. I will exit positions before the statement. The market should have a negative initial reaction to tapering and I want to buy that dip aggressively. If I don’t get a dip I am prepared to buy into strength.
All of the puzzle pieces are coming together. Take bullish positions and reduce risk into the FOMC meeting.