The S&P 500 Will Challenge 1850 In the Next Few Days – Stay Long and Manage Profits

December 27, 2013

Seasonal strength will push the market higher into year-end. As long as the action does not get too overheated, profit taking will be minimal. The SPY should be able to challenge $185 and the table is set for a strong start in 2014.

Yesterday, I outlined all of the bullish influences. Please go back and read the comments I posted on 12/26.

I don’t see any speed bumps ahead. The volume is light and so is the news. Money Managers receive performance-based compensation and they typically “goose” the market into year-end (Santa Claus rally). The offers are thin and a small buyer can push stocks upward.

Earnings season is right around the corner and it will kick off on January 8th. The volume will return that week and we will patiently wait to buy more calls.

Look for stocks that have been in a strong uptrend and that have consolidated for a few weeks in a tight trading range. Buy calls when the stock breaks through resistance. These moves tend to last a few days and in some cases a few weeks. Even if the market is lackluster, these stocks will grind higher.

LVS serves as a nice example. It broke through horizontal resistance at $60 in September and it surged to $68. After a brief rest, it broke through $68 and it ran to $74. On each of these horizontal breakouts you can see that the momentum lasted a week or more and the biggest gains came right away. The stock rallied to $78 a few weeks ago and now it is breaking out again.

Don’t load up on this pick; I am simply using it as an example. There are many just like it. In fact, there are better picks. I like stocks that have not staged a 30% rally in 3 months. The first LVS breakout at $60 was much more interesting to me because the stock had more room to run. Place your stops at the breakout level.

I would stay away from high fliers. They might be vulnerable to profit taking. I would not bottom fish either. These dogs might see tax loss selling and you will have a shot at them after Jan 1.

Manage your profits and don’t overextend yourself in this light volume environment.

You will be able to ramp up when earnings season begins.
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