Asset Managers Pulled Bids To Gauge Selling Pressure. Bid Is Still Strong. Buy Dips – Keep It Small

August 6, 2013
Author: Peter Stolcers, Founder of OneOption
Author
Pete

This is shaping up to be a light volume week and we can expect choppy trading. Earnings season is winding down and major economic releases are behind us. Furthermore, Congress is in recess and we shouldn’t hear any comments about the debt ceiling. Traders typically take time off in August and I consider this price action be nothing more than noise.

Economic releases have been decent lately. Growth is sluggish, but investors are hanging on to the notion that the PBOC will ease if needed and that conditions have stabilized in Europe.

In the US, GDP, ADP, ISM manufacturing, Chicago PMI, and ISM services all came in better-than-expected. The fact that the market held up well after a strong ADP report tells me that traders have accepted the fact that tapering will take place in the next few months. Even though the Fed is reducing bond purchases, their actions are still accommodative.

Earnings on the S&P 500 will be down .5% year-over-year. These are some of the worst comps we’ve seen in a long time, but Asset Managers are focused on record cash flows. Corporations have slashed expenses and any future uptick in demand will go straight to the bottom line.

The market momentum is strong and we made all-time highs last week. Shorts will not stand in the way of this freight train. Profit taking should be light and bullish speculators will nibble. That means the market should be able to inch higher. We are likely to see a few pullbacks, but as long as the SPY is above $170, I will focus on bullish positions.

Look for horizontal breakouts after strong earnings. These moves are sustained. As soon as the momentum wanes, take profits and move on. I will not take bearish positions unless the SPY poses below $167.

The market is due for a pullback and Asset Managers are pulling bids today. They want to gauge selling pressure and once prices stabilize, we will gradually recoup the losses. Asset Managers will not chase stocks at all-time highs, but they will buy dips. The bid remains strong and there are not any news events to spoil this rally.

Keep your size small as we head into the summer doldrums.
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