Last week, the market broke out to a new all-time high. The price action was very steady heading into the weekend and the volume is starting to pick up. These are encouraging signs and I believe we will have a small grind higher this week. In general, the price action will be pretty boring.
Earnings season is almost over and the results were decent. Analysts are maintaining their projections for the S&P 500. The calendar is filled with retailers and those results will be mixed.
There aren’t many economic releases this week. Flash PMI’s will hit the market Thursday morning and they should be good.
Fed officials will be speaking this week and the FOMC minutes will be released Wednesday. A handful of analysts believe the recent rhetoric has been hawkish and that the Fed will taper in December. I don’t believe they will taper until Janet Yellen takes office and the debt ceiling is extended. Consequently, their comments should be relatively neutral this week.
The macro backdrop is very bullish. Earnings have been good, balance sheets are strong, companies are buying back shares and the dividend yield on the S&P 500 is greater than the yield on US 10-Year Treasuries. Economic conditions are improving and central banks are “loose”.
We should have a nice tailwind for the next few weeks. Once we get into December, the CR and the debt ceiling will start to weigh on the market.
In the first quarter of 2014, Obamacare will start to take a toll. The majority of new enrollees are opting for Medicare and deficit spending will escalate. Individual premiums and deductibles will rise and that will take a bite out of consumption. The rollout has been horrific and the government is guarding the statistics to save face. It might take months for the impact to be known, but it won’t be good.
These issues will not be a factor for the next few weeks. Focus on stocks that are in an uptrend and have broken through horizontal resistance. I like cyclicals, transportation and financials.
The first week of a five week option expiration cycle tends to be flat. Look for a gradual grind higher. The SPY might make it as high as $182 this week. Use SPY $178 as a stop and move your stop up as the market movies higher.
I will add to my call positions and take will take me up to 30% of my normal size. This will complete my position.
The price action this morning looks good and this should be a nice start to the week.