Market Momentum Is Slowing – We Could See A Small Wave of Profit Taking. Lock In Profits

December 30, 2013

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We are in a news vacuum and momentum is pushing the market higher. The volume has been light and these gains can quickly be stripped away by one bad number. I am taking profits today.

I do not see any signs of selling; I simply want to take some chips off of the table after a fantastic run. This move has been a little too easy to predict and some of the “fluff” needs to be taken out.

There are a few economic releases this week. Global official PMI’s will be released Thursday. They should confirm that worldwide growth is stable. Europe will be of primary interest. We will also get ISM manufacturing and initial jobless claims on Thursday.

The macro backdrop is bullish. Central banks are easing, growth is moderate, earnings are good, cash flows are strong, corporations are buying back stock and credit concerns are low.

Earnings season is only a couple of weeks away. Stocks tend to rally into earnings season and seasonal strength is working in our favor.

The debt ceiling won’t be reached until February. Traders believe that Republicans will negotiate and the threat of default will be discounted. If the rhetoric heats up towards the end of January, this could be an issue.

Interest rates are creeping higher, but they won’t spoil the rally as long as economic growth is intact.

The gains after the December FOMC meeting came quickly. This was a nice move and it was a little too easy to predict. Stocks have floated higher on light volume and we could see a small wave of profit taking. I would not be surprised to see the SPY trade down to $181.50 (the breakout) in the next week.

I am taking profits today and I don’t plan on trading tomorrow. This has been a fantastic year and I want to start 2014 off with a clean slate.

I mentioned last week to avoid the high-fliers. Today, we are seeing profit taking on these stocks into year-end. Asset Managers will pair those winners off with some of the dogs to reduce capital gains taxes so I would avoid bottom fishing until 2014.

The market momentum has stalled and you won’t have that as a tailwind. I suggest taking some profits. Manage your positions and use SPY $183.50 as a stop.

May you and your family find health and happiness in 2014.

HAPPY NEW YEAR!
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