The FOMC Game Plan Worked. Ride This Wave – It Still Has Room To Run!
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Wednesday, I provided a comprehensive game plan on how to trade the FOMC statement. If you followed my advice, you made a killing.
The Fed tapered and they reduced bond purchases by $10 billion. I mentioned that a taper would be accompanied by a reduction in the Fed’s jobless target rate to 6.5%. This effectively keeps the zero rate interest policy (ZRIP) in place for the next few years. The market initially sold off on the news and the S&P 500 dropped eight points. In a matter of minutes, that move reversed and a huge buying opportunity presented itself.
I mentioned in my comments that I was bullish and that I was long calls ahead of the release. I knew I might take a little heat on the announcement, but I was looking for an opportunity to buy more calls. When the time came I did not hesitate. I hope you followed my game plan.
The market ran up to the all-time high and the price action got a little frothy. Initial jobless claims came in at 375,000 and this is the second bad number in a row. In the grand scheme of things, this is not even a blip on the radar.
The macro picture is very bright the rest of the year and we are set up nicely for 2014. The budget was approved by the Senate yesterday and the market will not be concerned with the debt ceiling. Traders will assume that the GOP will extend it in Q2 without much of a battle. Republicans want to stay out of the headlines until the 2014 elections.
Economic conditions in the EU are improving. This has weighed on global activity the last few years and a rebound could provide a huge catalyst for the market. Furthermore, the ECB is forming a centralized banking authority and credit concerns are low.
China’s growth target for 2014 is 7.5% and that is better than expected. Any decline will prompt easing by the PBOC and government stimulus. Japan’s economy is growing and business confidence is at a multi-year high.
Domestic economic conditions are strong and the Fed cast a vote of confidence by tapering yesterday. Growth in the last two months was strong enough to offset the government shutdown.
Earnings season is winding down and the results were good. Corporate profits and cash flows are at all-time highs. Companies are buying back shares at a record pace. Any uptick in demand will go straight to the bottom line.
Stocks will probe for support early this morning and the damage will be contained. Now that there is less uncertainty, the bid will strengthen. The market will make a new high in 2013.
Seasonal strength will push stocks higher. Asset Managers will be less willing to take profits now that these issues have been resolved. That means the offers will be small and marginal amount of buying will push stocks higher. Money Managers get paid on performance and they like to “goose” the market higher into year-end.
Trading volumes will decline in coming weeks and we will see a gradual drift higher.
Buy stocks that are in an uptrend, have consolidated for a few weeks and are breaking through horizontal resistance. These will be your best bets.
Uncertainty has been removed from the market and the first two months of 2014 should be strong.
You should be long at fantastic prices. This is a quadruple witch and you can expect a little choppiness. If the market makes a new high today, shorts will get squeezed.
Ride out the early weakness and look for opportunities to get long.