The market got ahead of itself and bullish speculators are getting flushed out. Asset Managers will pull bids ahead of the holiday weekend and they don’t want to chase stocks at an all-time high.
Comments from the Fed were not that damaging. They do not intend to taper under current economic conditions. If they see improvement they will gradually pare back bond purchases. They don’t plan on ending quantitative easing and even when they do, they will carry a huge balance sheet well into the future. Traders were simply looking for an excuse to sell and they don’t like to be reminded that the punch bowl will someday be removed.
China’s flash PMI came in light and government officials have no stimulus plans. They are satisfied with current economic growth and that has some traders uneasy.
Economic conditions in Europe are dismal, but there might be signs that activity is bottoming out. EU officials agree that a centralized banking authority needs to be formed and they are forging ahead. This will keep European credit concerns subdued this summer.
Tax receipts in the US are good and the government has enough money to get through Labor Day. That means the debt ceiling will not be an issue for at least a few months.
The spike and initial jobless claims last week was reversed and it looks like it was a one off event. Durable goods orders were little better than expected this morning. The only economic news next week is GDP and that should not have much of a market impact.
Earnings season has ended and the results were decent. Stocks are still attractive relative to bonds and Asset Managers do not want to miss this rally.
The bid is strong and this is a normal correction. We ran up quickly and that means there could be more downside.
I bought some calls yesterday and I will add today if the market stages a late rally. I would prefer to stay on the sidelines because of time decay and it would have to be a nice run to get me interested.
The light volume will continue next week. I am looking for stocks that are in an uptrend, have consolidated in a tight range and have recently broken through horizontal resistance. Ideally, they are holding up well and are pulling back to that breakout. As long as the breakout holds, they will rebound with the market. Use that breakout as your stop.
I am also looking for stocks that rebounded when the market reversed yesterday. That will tell me that buyers are close at hand.
This is the dip we have been waiting for. If the SPY breaks below yesterday’s low ($164), it will test $163.50 (20-Day MA). That would be a natural resting spot and I don’t believe we will go below it.
Look for opportunities to get long. This dip will not last more than a few days.
PLEASE TAKE TIME TO HONOR THOSE WHO FOUGHT TO MAKE OUR COUNTRY GREAT – HAPPY MEMORIAL DAY!