ECB and FED Spark Buying – Stay Long! The Meat of This Move Will Come In November

November 7, 2013
Author: Peter Stolcers, Founder of OneOption
Author
Pete

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I advised you to buy some calls on Tuesday and I suggested adding to those positions yesterday. The S&P 500 is up eight points before the open this morning and you should be making great money.

The market has been gathering strength while it consolidates in a tight range. Asset Managers don’t want to miss a year-end rally and they are not getting the dip they hoped for. This means the bid will strengthen with each passing day.

The news has been excellent the last few weeks and we have new information. A Fed study suggested that an economic recovery can be accelerated through accommodative monetary policy (there’s a shocker). The FOMC would have to lower its target unemployment rate from 6.5% to 5.5% and it might postpone tightening until 2017.

Inflation in the EU has been contained and many analysts felt that the ECB would lower interest rates during its meeting today. Economic forecasts for 2014 were lowered from 1.2% to 1.1% this week. Before the open this morning, the ECB gave the market what it wanted and it lowered interest rates by .25%. This could be the catalyst that propels the market.

All of the other economic releases have been good. Retail sales, ADP, Chicago PMI, ISM manufacturing, ISM services and all of the global PMI’s came in better-than-expected. Tis morning, GDP came in at 2.8% and that was much better than expected. Tomorrow’s Unemployment Report can only be positive. If the number is strong, it will instill confidence. If the number comes in light, the government shutdown will be blamed and traders will give it a free pass.

Earnings season has peaked and the results have been good. Analysts are maintaining their S&P 500 earnings estimates. Cash flows are at record levels and companies are buying back shares.

Politicians have kicked the debt ceiling can down the road. This will not be an issue for at least a month. Republicans were humbled during the last round of negotiations and Democrats are embarrassed by the failed rollout of Obamacare. The upcoming battle in January should be much less contentious.

Central banks around the world are “loose”. The market will not be plagued by credit concerns and PIIGS interest rates remain stable. The Fed will not taper until Janet Yellen takes office and the debt ceiling is extended.

Stocks are in a seasonally bullish period. Asset Managers will buy this breakout knowing that they won’t get a pullback.

If the market grinds above SPY $178, add to positions and use SPY $177 as a closing stop.

The breakout and follow-through will attract buyers. Look for cyclical stocks that are in an uptrend and are breaking through horizontal resistance. The meat of this rally will come during the next few weeks – stay long.
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