This week we could be headed for a news vacuum and the summer doldrums are likely to set in. Earnings season is winding down and major economic releases are behind us. Politicians are in recess and traders will take time off. I don’t see any drivers or spoilers this week.
S&P 500 earnings will be down .5% year-over-year in Q2. These are some of the worst comps we’ve seen in years and guidance has been very guarded. Cash flows are at record levels and that alone has been enough to keep investors engaged.
Economic activity in the US is sluggish. GDP, ADP, Chicago PMI, ISM manufacturing and ISM services all exceeded expectations. Friday’s jobs report was a little light, but traders shrugged it off. The most interesting take away from last week was the reaction to a strong ADP report. Stocks could have dropped on the notion that the Fed would start tapering in September. The market shoulder the news and that tells me that traders have accepted the fact that the Fed is going to reduce bond purchases.
China’s official PMI was slightly better than expected. Even if it came in weak, the PBOC will provide a safety net. Conditions in Europe also improved slightly.
Debt ceiling concerns will subside during the next few weeks since DC is in recess.
Momentum will push the market higher on light volume. Asset Managers will not chase at this level, but they will buy dips – the bid is strong. Now that the market is at new highs we won’t see much in the way of profit taking. The ask will be relatively small and bullish speculators will nibble. Stocks will inch higher on very light volume.
A negative news release is the only thing that could spark profit taking. The calendar is empty and I don’t see any spoilers.
I have been trading a mix of calls and puts. I had a bearish bias heading into the FOMC and I took some small losses last Thursday. This week I plan to trade from the long side. I’m still focusing on horizontal breakouts after earnings. These moves tend to last a few days. When the momentum stalls, I take profits and I move on.
The market should be pretty flat with a slight upward bias. There will be individual news stories to trade and I suggest focusing on stocks.
The SPY probed for support early this morning and it has recovered. First support is at SPY $170. As long as we are above that level you can stay long with confidence. The next support level is SPY $167. I won’t get bearish until we trade below that price point.
There is not much to drive this market. Focus on breakouts, stay long and keep your size relatively small.