The news has tapered off and conditions are quite. After a huge run, the market needs time to rest. Time decay will be an issue for option buyers over the next two weeks.
I like the macro backdrop. Jobs in the US are gradually improving and the soft patch in April appears to have been a seasonal adjustment. Growth is not robust enough for the Fed to stop easing.
Germany supports a centralized banking authority (change of heart from last year) and they want to quickly move forward. European credit concerns have not been an issue and if they make progress, this dark cloud could stay away the rest of the year. Remember, each of the last two years the market has declined during the summer on European credit concerns.
China’s growth is stable at 7.7%. The government is satisfied with that level and it does not have stimulus plans. They will release industrial production and retail sales tonight. Both numbers should be in line.
Earnings season is winding down and the economic releases are light (Fed speak, initial claims and the Philly Fed). Profits were decent and guidance was cautious. Any uptick in demand will go right to the bottom line as companies run lean and mean.
Central banks around the world are suppressing interest rates. Bond yields are at historic lows and investors are buying stocks. Equities remain an attractive investment alternative. Corporations are also using their cash to buy back shares.
Asset Managers that waited for a pullback are running scared. The bid has returned and the market does not look like it will decline in May.
Bullish speculators will take profits as the momentum stalls. Buyers will step up to me that selling and the market will flat line.
Declines will be relatively contained and they will present buying opportunities. When we get an early market dip, day traders should buy once support is established.
I have a relatively small call position (25% of my normal size) and I’m going out to June to mitigate time decay. These calls are on stocks that are breaking through horizontal resistance on strong volume. Once the move stalls out, I take profits and look for the next opportunity. I prefer to day trade.
Now that we have broken out, support is at SPY 159. I don’t believe we will test that level before Memorial Day.
Look for price consolidation and quiet trading. Try to find the action within.