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If you have been following my advice, you have a full boat. Ride your longs and manage profits. The “meat” of the year-end rally will come in the next few weeks.
Yesterday, the market pushed higher and we challenged the all-time high. The overnight news has been good and stocks should continue to grind higher today.
Google posted excellent results and IBM’s miss will soon be forgotten. GE posted solid numbers this morning and that will pave the way for cyclical stocks. This is the source for the next leg of this rally.
Global economic conditions are improving. Overnight, China posted solid growth (industrial production, retail sales and GDP). Groups like heavy equipment, basic materials and chemicals will benefit.
Domestic economic releases will be foggy. Next Tuesday (October 22), the September jobs report will be released. Analysts are expecting 180,000 new jobs. If the number falls short of expectations, traders will blame the government shutdown and they will give it a free pass.
The Fed will not taper until 2014. Janet Yellen will have a chance to get her feet on the ground and the debt ceiling will be extended for a year.
Corporate profit margins are healthy due to cost-cutting. Any uptick in demand will go straight to the bottom line. Cash flows are at record levels and companies are buying back stock. Any optimistic guidance from CEO’s will fuel this year-end rally.
Today is option expiration and we can expect some volatility. After a huge rally this week, stocks are due for a breather.
I don’t see any speed bumps ahead. Hold your long positions and ride your profits. We should see a push higher next week.