Don’t Read Too Much Into This Light Volume Decline. Backdrop Still Bullish – Buy Dips

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

Today I am launching a new system called Options Buyer. I am introducing it at an incredibly low price of $9.95/month through Sunday Feb 10th. It is a platform add-on. To learn more CLICK HERE Last week, the market surged to new five-year highs on strong economic news. Conditions in Europe are improving, China's GDP is on track to exceed 8% this year and private sector job growth in the US has been rising. Credit risks are relatively low and Asset Managers are in "risk on" mode. The market looks poised move higher. Earnings season has gone well. Revenues are flat but profit margins have been maintained through cost-cutting. Most analysts believe that this is a trough and they are discounting current releases. Their focus is clearly on Q1 and the guidance has been decent. Earnings season is winding down and it should not provide any surprises. Bond yields are near historic lows and Asset Managers are rotating out of fixed income and into equities. They will buy dips, but they will not chase. Everyone is looking for a pullback and that typically means we won't get one. The market is likely to consolidate gains for a few weeks. It will gather strength and it will make a run at the all-time high. The debt ceiling has been extended until May and Republicans don't plan on using it as leverage for entitlement reform. Sequestration negotiations will progress and the market will give DC the benefit of the doubt. The economic releases this morning were benign. The ECB's statements were not material and initial jobless claims declined 5,000. Tonight, China will release its trade balance and the expectations are bullish. Next week their market will be closed to celebrate the New Year. We are heading into a news vacuum for the next week. China's exchanges are closed for business, the economic releases are light and earnings season is winding down. President Obama's State of the Union speech (Tues) could ruffle a few feathers and the banter between both parties could get ugly. Once we get past that event, the market should be able to find support and move higher. The macro backdrop is bullish. Asset Managers pulled their bids this week to gauge selling pressure. If they do not see profit taking, they will gradually buy stocks. The declines this week have come on light volume. This indicates an absence of buying, not a round of selling. Look for choppy trading in a relatively tight range. There is minor horizontal support at SPY 148 and that should hold. Major support lies at SPY 144. As long as the market does not get ahead of itself, this rally will continue. We are hitting a "soft patch" and it will run its course in a few days. No news is good news and I don't see anything that will stand in the way of this rally for at least a month. Look for sector rotation. Buy calls on stocks that have released strong earnings and have provided good guidance - AGU is a good example. You can scour the market for hours each day to find these stocks or you can subscribe to the Daily Report. The Live Update Table will take you right to the action. Don't read too much into today's selloff. The patient and wait for support. The dips should be brief and relatively shallow. . . image

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