Limited Military Action In Syria and Strong Econ Releases Will Spark Buying Next Week

August 29, 2013
Author: Peter Stolcers, Founder of OneOption

This week's market selloff was largely due to uncertainty in Syria. We are in a news vacuum and the market will lean on whatever it has. In this case the statements made by the Secretary of State dampened spirits. The SPY broke below the 100-day moving average and we crossed back above it yesterday. Air strikes in Syria were delayed while the Pentagon gathers information. In all likelihood, this will be a strategic attack that lasts a few days and cripples the government. It will serve as a warning that chemical warfare will not be tolerated. Americans do not want another conflict and we will not put boots on the ground. Once our military actions are made public, the market will rally. Major economic releases are slated for next week (global PMI's, ISM services, ISM manufacturing, the Beige Book, ADP and the Unemployment Report) and the news will be strong. Conditions in China and Europe are improving and this could be the second positive set of data points. US jobless claims are at their lowest level since November 2007. The combination of limited military action in Syria and strong economic news should rally the market next week. Temper your excitement because there is a speed bump ahead. The FOMC will meet on September 18th and I believe they will taper. The first move will be very gradual and bond purchases will barely be reduced. Interest rates have moved higher and the Fed does not want them to spike. Traders won't like the news, but they will get used to the move. Liquidity is still being added to the monetary system and by all measures, the Fed is still accommodative. Politicians will return from recess and the debt ceiling battle will begin. Investors will be nervous for a few weeks, but the can will get kicked down the road. This second wave of selling will run its course by the end of September. Seasonal weakness will end and Asset Managers will try to front run a year-end rally. That means the bid will strengthen with each passing week. Corporations are lean and mean and any uptick in demand will go straight to the bottom line. Cash flows are already at record levels and companies are using that money to buy back shares. I will buy this dip and I will focus on stocks that are in an uptrend and have broken through horizontal resistance. Most of my activity will be limited to day trades, but I will buy a few calls as well this week. Given my forecast, I will take profits before the FOMC. I do not plan on shorting that dip (if we get one). That move should be fast and furious and I want to keep my eye and the ball. We are setting up for an excellent buying opportunity and I don't want to miss it. The action will start to pick up next week and you'll need some rest as we head into a busy fall season. Take time off and enjoy the holiday with friends and family. Happy Labor Day! . . image

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