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Yesterday, the market sold off in anticipation of military action in Syria. In all likelihood, the US will mount a strategic air strike that lasts a few days. Americans do not want another conflict and there will not be “boots on the ground”. Until our intentions are disclosed, the market will remain nervous.
If our military action is limited to airstrikes, the market will rally.
The SPY fell below the 100-day moving average and when support is established, this will be an excellent entry point for bullish positions. I would like to see an intraday low with a sharp reversal. That congratulation might come on the actual attack.
Politicians will return from recess and the debt ceiling rhetoric will heat up. We’ve been here before and the market will shoulder the news knowing that the can typically gets kicked down the road at the last minute.
We’ve been in a news vacuum the last two weeks and that will change after Labor Day. Global PMI’s, ISM manufacturing, ISM services, the Beige Book, ADP, retail sales and the Unemployment Report will be released. Good news will soften tapering concerns.
The Fed will reduce bond purchases gradually. They don’t want interest rates to climb any higher and they will reveal their plan during the FOMC meeting on September 18th. This could be another speed bump for the market. The Fed remains accommodative and the market will get used to the move as long as economic conditions continue to improve.
Corporations have healthy profit margins because of cost-cutting. Cash flows are at record levels and any uptick in demand will go straight to the bottom line. They are using cash to buy back shares. I recently read a study that suggests that 50% of outstanding shares have been repurchased in the last 10 years. This is a very powerful macro condition.
Asset Managers do not want to miss a year-end rally and the bid will strengthen in coming weeks.
I like the dip below the 100-day moving average and I am lining up my bullish plays. There will be a few speed bumps along the way, but a deep capitulation low would force me into action right away.
I will buy calls when our military action in Syria is made public. Stocks will rebound and that bounce will be accompanied by good economic news. The FOMC could present a problem so I don’t want to load up.
I am only interested in getting long today. If the market makes a new high for the day, I will buy some calls on stocks that are above a horizontal breakout. I am also looking for strong uptrends.
Time decay will be an issue and I suggest buying October calls. Look for opportunities to get long and know that you might take a little heat when the airstrikes begin.