Syria and FOMC Keeping A Lid On the Market. Look For Good News and Nervous Trading

September 4, 2013
Author: Peter Stolcers, Founder of OneOption
Author
Pete

Yesterday, the market jumped higher on strong PMI’s in Asia and Europe. Stocks could not hold the gains and comments from Secretary of State John Kerry weighed on the market. President Obama made it clear in a speech this morning that he believes Congress will vote for a strategic air strike in Syria. The vote will not take place until September 13th and we could be in a holding pattern for another week.

I thought this outcome was already priced into the market but it appears that there is some nervousness. In two weeks, the FOMC will meet. If Friday’s Unemployment Report comes in above 150,000 (175,000 is the consensus estimate), the Fed will taper. These two events will counter bullish economic releases.

Politicians are returning from recess and the debt ceiling banter will increase. Some analysts believe that if Congress agrees to an air strike in Syria, it might lead to constructive budget negotiations. I am not that optimistic, but the “can” historically gets kicked down the road at the last minute. The market will discount the event until it is on our doorstep.

Global economic conditions are improving and the market will shoulder higher interest rates. It is important keep in mind that the Fed’s monetary policy is accommodative even if they reduce bond purchases. With each passing week the bid will strengthen. Asset Managers will try to front run a year-end rally.

Corporate profit margins are healthy due to cost-cutting and any uptick in demand will go right to the bottom line. Balance sheets are strong and companies are buying back shares. We had to big mergers this week and it demonstrates a willingness to use cash.

The Beige Book will show strong regional growth this afternoon. ADP, initial jobless claims, and ISM services will be released tomorrow. These numbers will also be bullish.

An air strike in Syria and Fed tapering are already priced in. Without these two events, the market would be in rally mode. Once they take place, the market will take off.

I am looking for opportunities to get long. I have a handful of calls and I am day trading horizontal breakouts. It is still too early to load up. Keep your size small and start scaling into call positions on any dip. Reduce risk ahead of the FOMC.

I am hoping for a selloff once the Fed starts tapering. When support is established I will buy calls. It is possible that the reaction will be positive and I might have to buy into strength. Either way, I want to let the event pass and I want to get long into year-end.

Look for good economic news and nervous trading the rest of the week.
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