Market Wants To Grind Higher. Potential Speedbump Wed Afternoon and Thurs Morning.

May 20, 2013

The bid is strong and the market was able to shrug off soft economic releases last week. The Philly Fed, Empire Manufacturing, housing starts and initial jobless claims all disappointed. We are due for a quick pullback and I’m looking for news that might spark selling.

Wednesday, the FOMC minutes will be released. Their statement last month was balanced. They will reduce quantitative easing if economic conditions are improving and they will continue “loose” policies as long as growth is sluggish. Given the recent round of economic releases, I’m not expecting any tightening. However, traders are spooked by the thought that easing will be reduced at the first sign of an economic recovery.

Thursday, China’s flash PMI will impact the open. Economic activity has been sluggish and growth projections have been reduced from 7.8% to 7.6%. The latest round of releases (industrial production, retail sales and trade balance) were mixed to slightly negative. A miss could dampen sprits.

Initial jobless claims will also be released Thursday morning. They spiked 32,000 last week and traders will be looking for an adjustment. If they maintain last week’s level, traders might question the jobs recovery.

The market typically rallies into holidays. However, we’ve had a fantastic run and conditions seem a little frothy. Light volume rallies like the one we saw last week are vulnerable to profit taking.

Asset Managers are still playing catch-up, but the last round economic releases have given them a little breathing room. They won’t chase stocks at an all-time high. If we get a small round of selling, they will pull their bids so that they can gauge profit taking. Bullish speculators will get flushed out.

This dip will present a buying opportunity. I don’t know if it will happen, but the best opportunity for decline will come Wednesday afternoon and Thursday morning.

Trading volumes will decrease heading into Memorial Day. Last Friday the market jumped higher and then traded in a very tight range for two hours. When we made a new high for the day, it gradually ticked higher. There was no one to stand in the way.

This morning, stocks opened flat and the action has been dull. Now we are ticking higher.

I prefer to day trade. I can catch most of the intraday moves and I don’t have to take overnight risk. Call buyers will be exposed to time decay. If you are nimble and you can find a nice stock that is breaking out, buy calls. Don’t overstay your welcome and get out as soon as the momentum stalls.

If we do get a nice dip (20 S&P points), I will buy calls.

We should have two more days of good price action before we see some volatility.

The market wants to inch higher today.
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May 17, 2013

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