Fed Will Keep Its Foot On the Gas. Market Lifts Off – Hits Resistance. Be Careful

May 22, 2013

The market wants to keep pushing higher and this morning it got another round of great news. Chairman Bernanke said that it is too early to taper bond purchases and the Fed intends to continue quantitative easing. Stocks shot higher on the news.

There isn’t much news to drive the market and soft economic releases have been discounted. Flash PMI’s will be released overnight, but they won’t have much of an impact. Traders will also be watching for an adjustment to initial jobless claims after they spiked 32,000 last week. Even if there is not an adjustment, the market will hold up knowing that the Fed will provide a backstop.

This news should fuel buying through this week. Volumes will drop off ahead of the holiday.

Asset Managers were under allocated are aggressively bidding for stocks. Pullbacks will be brief and shallow.

The market opened unchanged and I was still able to catch most of the move day trading. I was hoping for a pullback on the FOMC minutes this afternoon, but the “cat is out of the bag”. I also thought we might get some follow-through selling on light economic releases tomorrow. That does not look likely either.

Focus on stocks that are breaking through horizontal resistance. We should see some follow-through buying the next couple of days.

I would buy in the money options with a high delta. You can get in and out easily and you won’t be exposed to time decay.

The market got ahead of itself and we saw a nasty reversal. That shook a few people out and we should grind a bit higher.

Be careful, prices are frothy and we are due for a pullback.
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