This week the market broke out to a new all-time high. Initially, the volume was low but that has improved the last two days. The macro backdrop is bullish and seasonal strength will push stocks higher the next few weeks.
Earnings, interest rates, economic growth and central bank easing are all providing a tailwind. The meat of this rally will come in the next couple of weeks.
As we get into December, the CR, the debt ceiling and tapering will come into play. They should provide resistance.
Next week we will get a fair amount of “Fed speak”. Recent comments have been deemed as hawkish and some analysts believe we will see tapering in December. I am not in that camp. I believe that Janet Yellen will take office and the debt ceiling will be extended before the Fed reduces bond purchases.
Flash PMI’s will also be released next week and they should be market friendly. Overnight, China’s economic plans were leaked and the reaction was favorable. Stocks in Asia rallied.
I’ve been referencing the financial implications from Obamacare. The government has been reluctant to share information to the public so the impact will unfold slowly. When the dust settles, our deficits will explode and personal consumption will decline because of increase healthcare costs. This program will hit taxpayers and individuals in the pocketbook. This won’t be a problem until February or March, but it will be a problem.
We still have a few good weeks left in this rally. Buy calls on stocks that are breaking through resistance. These moves tend to be sustained. Keep your size relatively small (less than half of your normal position) and maintain a stop at SPY $178.
I only have 20% of my normal allocation on at this time. If the market grinds higher today and we easily break through $180, I might take that up to 25%. This has been a banner year and I don’t want to give back any of my gains.
The market looks poised to grind higher today.