Good Long Term Event. Germany Wants To Proceed Quickly – EU Centralized Banking Authority

May 7, 2013
Author: Peter Stolcers, Founder of OneOption

Stocks should inch higher this week as we enter a news vacuum. After a breakout to new all-time highs, the momentum is strong and no one will stand in front of this freight train. Earnings season is winding down and this soft patch is being dismissed as a seasonal adjustment. The S&P 500 is trading at a forward P/E of 15 and stocks are attractive relative to bonds. The big economic news hit last week and the calendar is light. Central banks are printing money like mad and credit risks are low. There was an important news event today and I don't hear anyone talking about it. Germany has been opposed to a centralized banking authority. Today its Finance Minister did a 180. He now believes that a centralized banking authority (ECB) is needed and he wants to proceed expeditiously. If steady progress is made, EU credit concerns will remain low. This dark cloud weighed on the market in 2011 and 2012. Republicans are pushing for tax law reform. They want a flat tax and they might be willing to extend the debt ceiling for a few months as long as progress is being made. The debt ceiling has not been a major concern to this point, but an extension will remove a potential rally killer. I am buying calls and I will build to 25% of my normal position. Time decay could be an issue as the news scene dries up. I suggest going out to June calls. I still don't trust this market, but as long as support at SPY 159 holds, I will stay long. I am also day trading. This is the majority of my activity and it allows me to participate in the move without taking overnight risk. Look for a gradual grind higher this week. . . image

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