Flash PMIs Are More Important Than Cyprus. China Soft Patch Could Weigh On the Market

March 20, 2013

Tonight I will be hosting a free webinar. CLICK HERE TO REGISTER I will be reviewing my trading systems and you are bound to get some great ideas.

The market pulled back from its highs Monday and Tuesday, but the damage was contained. Cyprus is merely a speed bump and it won’t be a blip on the radar a few weeks from now.

The situation is not resolved, but Russia might provide capital. Cyprus will try to reopen banks tomorrow.

I am much more interested in the flash PMI’s that will be released tonight. The PBOC has been tightening and China is working through a soft patch. This morning, FedEx said that it is cutting routes to and from Asia due to “excess capacity”. This is not a good sign and if China‚Äôs PMI comes in light, the market will decline. Economic growth in China is a major puzzle piece for this rally.

FedEx also cited slow conditions in Europe. That means we might not get the “pop” we were looking for in their flash PMI number. Domestic transportation was relatively flat.

I’m not going to read too much into these flash PMI numbers. It is just one number and it is an early reading. However, they could put a little pressure on the market.

The FOMC will release its policy statement today and they will also project economic growth. The current improvement in economic activity will be offset by the impact of federal spending cuts. I believe the comments will be consistent with gradual growth (Goldilocks). Quantitative easing will continue indefinitely and the Fed will carry a huge balance sheet well into the future.

Mutual funds have underperformed the market. Managers that are under-allocated will feel the heat. They have not gotten the 5% pullback they were waiting for and they will bid for stocks as we approach the end of the quarter (window dressing).

Earnings season is just a few weeks away (April 8th). With each passing day the bid will get stronger. The market has consolidated during the last few weeks and it has all of the ammunition (good domestic economic releases) it needs. The buying pressure is building and the S&P 500 will have enough strength to make a new all-time high in April.

I am looking for a pullback Thursday and I will add to my call position when the market finds support. I have 40% of my target position and by the end of next week I plan to take that to 65%.

Look for opportunities to get long. Know that the dips will be shallow and brief. Support at SPY $153 might not even get touched.

The relief rally this morning looks vulnerable. Stocks should retrace late in the day. The market has already priced in Goldilocks statements from the Fed and that means that any surprise favors the downside.

Expect a little weakness and use it as an opportunity to get long.
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