I am posting today’s comments an hour before the open. This has been a relatively quiet week and there wasn’t much overnight news to move market.
Momentum pushed stocks higher this week after a breakout to new all-time highs. Traders are convinced that the dismal jobs report a month ago was nothing more than a seasonal adjustment. Initial jobless claims declined by another 4,000 yesterday and the four-week moving average is at the lowest level in years.
Germany will embrace a centralized European banking authority and that will suppress credit fears. This was the biggest news of the week from my perspective since it is a complete reversal from a year ago. Economic activity is dismal in the EU, but many analysts feel that conditions are bottoming out.
China posted better-than-expected trade numbers and that will satisfy traders for a few more days. Industrial production and retail sales will be released Wednesday.
The Treasury Secretary said that the debt ceiling won’t be an issue until Labor Day. As long as progress is being made on a flat tax, Republicans might be willing to extend it.
These macro factors could result in a boring summer. The last few years the market has declined in May and then we’ve seen more volatility in August. As long as stocks don’t get ahead of themselves, we should have a nice boring grind higher.
Earnings season is winding down and economic releases are light next week. The danger right now is that the market could fall into a tight trading range before Memorial Day. If that happens, time decay will be an issue for call buyers. I suggest buying June options.
Asset Managers want to get in and better prices and support at the breakout (SPY $159) will be strong. The downside is relatively contained, but that doesn’t mean we are off to the races.
Yesterday, the market tried to rally and we saw a little profit taking. We’ve had some big gains recently and we can expect price consolidation. Any pullback of 20 points or more than the S&P 500 will represent a buying opportunity.
I have a core call position and it is 25% of my normal size. I did not catch the breakout and I am not going to load up at this juncture.
I am day trading to keep my overnight exposure low. There is plenty rotation. I like buying stocks that are in an uptrend and are breaking through horizontal resistance. These moves are sustained in they tend to last few days. When they lose the momentum, get out and look for the next breakout.
Look for choppy trading today with an upward bias.