After a long weekend, stocks shot higher this morning. Central banks said they will continue current policies and their statements sparked buying in Asia. That enthusiasm spilled over to Europe and the US.
Trading volumes will be light and the news is sparse this week. Earnings season is over and GDP/ Chicago PMI will not provide much action.
The Fed’s comments last week resulted in a little selling pressure. Traders were looking for an excuse to sell and they used this event to shakeout bullish speculators. The Fed will maintain quantitative easing and they will taper off when economic conditions improve. Fiscal spending cuts should keep a lid on economic growth and I don’t believe we will see any change this summer.
When the Fed does taper, activity should be strong and that is good for jobs and the market. Furthermore, they won’t stop quantitative easing altogether. They will simply reduce bond purchases. By no means will the Fed become a net seller. They plan to maintain a large balance sheet well into the future. We will hear rumblings about the “great unwind”, but it won’t be an issue for a long time.
Yields on US 10-Year Treasuries are back above 2%. In fact, yields are above the dividend yield on the S&P 500. We have not seen this in quite a while.
The market hit a low last week of SPY $164. We did not come close to challenging that low before rebounding. That tells me that buyers are close at hand.
Light volume favors the upside. I bought some calls Thursday and Friday, but my position is only a quarter of my normal size. I still believe I can catch most of the moves intraday.
I am looking for stocks that are in an uptrend, consolidated in range, broke through resistance on strong volume and pulled back to that breakout last week. If the breakout held and they are moving higher today, I am buying calls. I will use that breakout is my stop.
The market got a little ahead of itself this morning and we are seeing some profit taking. When support is established – buy calls.
I still believe that bullish speculators need to get flushed out. However, I don’t see the news this week that will spark selling. Major economic releases are slated a week from now and that is when we could see selling.
Wait for prices to come in and make sure that support is established. Look for stocks that fit the pattern I describe and buy calls.
As long as the market does not get too far ahead of itself we should see a nice grind higher.