Profit taking pushed the market below support at SPY $167 and bullish speculators bailed out of positions. The market found support above the 100 day moving average ($163) and the bid has returned. End of month fund buying and a major holiday should result in a gradual grind higher this week.
The calendar is very light and there are not any news releases until after Labor Day weekend. When we come back, the debt ceiling and higher sales taxes in Japan will dampen spirits. That won’t last long and politicians will find a way to kick the can down the road.
The Fed will taper, but the first move will be very gradual. They are still adding liquidity to the system and their policy is accommodative. With time, the market will get used to higher interest rates.
Seasonal weakness will start to wane towards the end of September. Asset Managers will try to front run an end of year rally. They want to buy before the move unfolds and the bid will grow stronger in coming weeks.
Global economic conditions are improving. Corporations are lean and mean and any uptick in demand will go straight to the bottom line.
Swing traders can start to nibble. Buy calls and go out to October expiration to limit the effects of time decay. Know that you are early and you might take a little heat. Look at dips as an opportunity, not a setback. Ideally, we will be able to add to positions on weakness. However, the news has been excellent and we might not drop to the 100 day moving average. That means we might be adding on strength.
Day traders can take advantage of the grind higher this week. Buy stocks that are above horizontal breakouts. This strategy will avoid time decay.
I believe you can start taking longer-term call positions now, but keep your size small. The market should grind higher the rest of the week and the volume will be very light.