GOP Win Pushes Market To A New All-time High – If the Gap Holds – Get Long

November 5, 2014
Author: Peter Stolcers, Founder of OneOption

Posted 9:00 AM ET - Voters have spoken and Republicans are relishing a landslide victory. The GOP was expected to pick up six seats in the Senate and they could possibly win nine. The House could have gone either way, but Republicans gained so many seats that they now have the largest majority since Truman. The market likes the news and the S&P futures are flirting with a new all-time high. Theoretically, this should be good for business. The GOP will try to reduce regulations and businesses should be inclined to invest. Corporations are sitting on $2 trillion overseas and a special tax exemption could bring that money back to US. That could be a huge catalyst in the future. Yesterday's decline was brief and shallow. This price action tells me that Asset Managers are anxious. Many are under allocated and they don't want to miss a year-end rally. Bullish speculators are waiting in the wings and they will buy this breakout. I don't see any dark clouds that will keep us from having a year-end rally. Economic conditions in Europe are fragile, but they are not falling off of a cliff. China's growth is intact and recent numbers (GDP, IP, retail sales and official PMI's) were good. Domestic economic conditions have been excellent. GDP came in at 3.5% last week and ISM manufacturing hit 59 on Monday (very strong). This morning, ADP reported that 230,000 new jobs were created in the private sector during the month of October. That was a strong number and it was in line with expectations. Analysts are expecting 225,000 jobs on Friday. The Fed cited strong employment conditions in their statement last week and we should easily hit that estimate. The Fed kept "considerable time" in their statement and they don't meet this month. The next time they can remove it is in December and we should have smooth sailing until then. Central banks around the world (ECB, PBOC and BOJ) continue to ease and that is bullish for equities. Corporate profits are up 7.5% and that is the highest level in four years. More than 75% of companies that have reported have exceeded estimates. New Ebola cases in Liberia are decreasing and quarantines in the US are expiring. This is excellent news. Fuel prices are declining and thanks to Saudi Arabia, this trend should continue. Lower pump prices typically translate into higher retail spending and this could be a good holiday for department stores. Seasonal strength will fuel this rally. I bought back out of the money put credit spreads earlier in the week. I locked-in profits and released margin. Yesterday I sold put spreads that were closer to the money. This maneuver is called "rolling up". If the market can hold the gap through the first half hour, I will buy S&P futures with a stop at SPY $202. I will buy calls if the move gains traction throughout the day. Get long. . . image

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