I recorded this short video this morning and you can see what we are trading. WATCH IT NOW!
This week the Dow made a new all-time high. Asset Managers have been waiting for signs of an economic recovery and now they have the information they need.
GDP inched into positive territory last week, durable goods orders were strong, housing starts were excellent, ISM manufacturing beat and Chicago PMI hit a new 11-month high.
The good news continued this week. ISM services exceeded estimates, ADP said 192,000 new jobs were added to the private sector in February, the Beige Book showed stable growth across the nation and initial claims declined by 7,000. The backdrop heading into tomorrow’s Unemployment Report is very positive.
The icing on the cake came from the Fed Chairman last week. Quantitative easing will continue for a long time and they plan to carry a huge balance sheet well into the future. This safety net is known as the “Bernanke put” and it just became a LEAP option.
Last night, President Obama organized a special dinner with GOP Senators. We don’t know the details, but John McCain gave reporters two thumbs up. This could be a very positive sign. If a budget gets passed, the market will jump higher.
China will release industrial production, CPI and retail sales Sunday evening. These will be important numbers and they could be soft. The PBOC removed liquidity and retail sales came in light last month. The official PMI was also a little shy of expectations. Many traders are also worried about property restrictions. Real estate accounts for 10% of China’s GDP and that could pressure growth. Most analysts still believe China will eclipse 8% growth this year.
Economic conditions in Europe are dire, but that is priced in. Any surprise favors the upside. Credit concerns are low and the ECB is printing money.
Stock valuations are attractive at a forward P/E of 14. Asset Managers have been looking for a pullback and they won’t get one. The 300 point drop last week was their chance to get long. Stocks instantly rebounded and they shot to new highs.
I believe the S&P 500 will challenge the highs this week. It will pullback after China’s numbers, but that will be a buying opportunity.
With each passing day the bid will strengthen. Analysts will raise Q1 estimates and stocks will rally into April earnings season.
The market has all of the good news it needs to move higher, it just needs time. The buying pressure will build and I am buying calls. I have 25% of my normal position on and I will add next week.
I have also been day trading after the market establishes its range in the first hour. If we are above the high, I buy stocks that are breaking through horizontal resistance. This strategy has captured most of the major moves in the last two weeks. I can use 4:1 margin and I don’t have to worry about overnight risk.
Gradually add to bullish positions and stay long.