Buy More Calls. Retail Sales Were Decent. News On Wed Will Be Market Friendly

October 29, 2013

Last week, the market looked like it might have gotten ahead of itself after an 8% rally in two weeks. The SPY surged to a new high after the jobs report and profit-taking set-in. That reversal could have flushed out bullish speculators if it gained traction and we would’ve hit an air pocket. Prices stabilized over the course of the next few days and the market was able to tread water.

The only potential speed bumps this week would have appeared overnight. Apple announced earnings and this could have been a “sell the news” event. The stock is flat this morning. Retail sales have been weak the last few months and that also had the potential spook investors. The number came in better-than-expected (up .4% ex-autos) and stocks are grinding higher.

Due to the government shutdown, we won’t get the October jobs report until 11/7. That means traders will lean on the ADP report tomorrow. Analysts are expecting 160,000 new jobs in the private sector and the number should be in line. The government shutdown has created a bit of a news vacuum and the economic releases are distorted. Asset Managers don’t have clarity and the ADP release will strengthen confidence.

Tomorrow afternoon, the FOMC will release its statement. They will not taper until 2014 and their comments should be dovish. They do not have clarity either and the release will be market friendly.

Initial jobless claims on Thursday and ISM manufacturing on Friday will not stand in the way of this rally. Official PMI’s will be released Monday and based on the flash numbers last week, global growth will be intact.

Earnings have been decent and analysts are maintaining their S&P projections for Q3. Cash flows are strong and companies are using that money to buy back shares.

Asset Managers don’t want to chase – they will monitor the market as it takes a breather. We did not pullback last week and that tells me that buyers are close at hand. With each passing day Asset Managers will get a little more anxious and the bid will strengthen.

I still believe that we will see a nice year-end rally and most of the move will come in the next few weeks.

We bought some calls yesterday. The retail sales number is out of the way and you should buy more calls today. Funds will buy into the end of the month and that will provide a tailwind.

The price action this morning looks good and the market should grind a little higher today. Focus on stocks that are in an uptrend and have broken through horizontal resistance.
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