Market Loves Easy Money. Tapering Could Pause and Debt Ceiling Will Be Extended

February 12, 2014

You should be long and you should be making great money. This is not a time to get in; it is a time to manage profits. Raise your stop up to SPY $181.50 and enjoy the ride.

Yesterday, the market blew through resistance and good news was priced in. Remarkably, the SPY is within striking distance of the all-time high.

Traders loved Janet Yellen’s first testimony before Congress. She is considered by most analysts to be dovish. In her statements she said that tapering is not steadfast. If economic conditions deteriorate, the Fed will pause.

I’ve been mentioning that politicians could be close to a debt ceiling deal. The House is preparing to pass a “clean bill” and they will submit it to the Senate before they leave for recess. This is very bullish and it removes uncertainty.

Earnings season has been good. Profits are up 7.5% year-over-year. Cash flows are at record levels and companies are buying back stock

Obamacare will be postponed for small businesses for a year. This is bullish news. Didn’t Republicans get slammed for suggesting something similar in October?

Economic conditions in China are soft, but they are still growing at a 7.7% clip. Activity in Europe is on the mend and this could be a huge catalyst if the recovery gains traction. Growth in the US has been hampered by bad weather and traders are willing to give this soft patch the benefit of the doubt.

Initial jobless claims will be released tomorrow and traders will be looking for steady improvement.

Trading in 2014 is going to be much more challenging than it was in 2013. Last week I mentioned that this bounce could be one of the best trading opportunities we see all year.

I am in profit protection mode. This was a fantastic run and it sets up the entire year. I can go to the bank and take some of the performance pressure off. It is much easier to play when you have a lead.

First of all, move your stop up to SPY $181.50. That was the breakout from October and it represents support.

The price action over the next few days will be very telling. We are close to an all-time high and resistance will build. We had a lot of good news this week and we were able to blow through my first target ($181.50). That was a bullish sign. Now we want to see a steady grind higher.

If this bounce loses its momentum quickly, we could be seeing the start of an intermediate trend change. We don’t need to worry about that now.

Manage profits and use SPY $181.50 as your guide.
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February 11, 2014

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