S&P Should Challenge the All-Time High This Week. Gradually Build Call Positions Over Next Few Weeks

March 12, 2013
Author: Peter Stolcers, Founder of OneOption
Author
Pete

The news is light this week and momentum will push stocks higher. The S&P is one good day from hitting a new all-time high and we should see that this week.

All of the recent economic releases indicate that we are coming out of a soft patch. Analysts will raise earnings estimates and stocks will rally into the announcements. Alcoa will kick things off on April 8th.

Economic conditions in Europe are dire and any surprise favors the upside. China’s numbers have been a little light, but they will eclipse 8% growth in 2013. The PBOC will do anything to jeopardize that.

The Fed said that they will remain accommodative for a long time and even after quantitative easing ends, they plan to carry a huge balance sheet well into the future. Last week’s employment numbers were encouraging, but they were not robust. Remember that we need 300,000+ jobs per month just to keep up with new entrants into the labor force.

President Obama met with Republican Senators last week and John McCain gave two thumbs up after the dinner. This was a step in the right direction and it is possible that the President will try to rein in Nancy Pelosi and Harry Reid. Paul Ryan seems optimistic that they can find middle ground. A deal would push stocks to a new high.

The market will give DC the benefit of the doubt. We saw this with the fiscal cliff and the debt ceiling. If the negotiations run into trouble, stocks will sell off at the 12th hour. I don’t believe this will be an issue for the next month.

I have been suggesting a controlled approach. Gradually scale into call positions. You will be fighting time decay and the market could pullback. Current positions should be making money and you should have a nice little cushion. With each passing week the bid will strengthen.

Focus on stocks that are in an uptrend and have broken through horizontal resistance on strong volume. These moves are sustained. When they run out of steam, take profits and look for the next opportunity.

The market has little downside momentum this morning and Asset Managers are pulling their bids. The volume is very light and I would not read too much into this move. Investors are anxious to get in and declines will be brief and shallow. View this pullback as an opportunity, not a threat.

Retailers have been reporting good revenues in recent weeks. That bodes well for tomorrow’s retail sales release.

Gradually add to call positions over the next two weeks. May options will have less time decay and the implied volatility hold up since they span earnings release dates.
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