Quiet Week Ahead With An Upward Bias. Support at SPY $136 – Resistance At $142

August 13, 2012
Author: Peter Stolcers, Founder of OneOption
Author
Pete

This was a good week to take time off. Since last Monday, the S&P 500 has been flat and the price action has been very lackluster. Traders spend time with their kids before they go back to school and this is typically a very slow period.

The economic releases two weeks ago were decent and that has provided a backstop. Even if conditions deteriorate, central banks stand ready to take action.

The ECB said that it will do whatever is necessary to support members as long as they cut fiscal spending. Eurocrats are promising that plans for a centralized banking system will be drafted by the end of September. These statements don’t mean much to me, but as long as traders “believe”, the market will drift higher.

Earnings season is winding down. This week we will hear from retailers. The results will be mixed and discounters should fare well.

The biggest news came over the weekend when Romney selected Paul Ryan as his running mate. The battle lines are drawn and politicians are very polarized. Regardless of which party wins, this is not in the best interest of our country. We need a leader who can negotiate and bring both parties together.

President Obama holds a strong lead in the polls. He will use scare tactics (Medicare cuts and deportation) to attract a huge base (retirees and Hispanics). I hope I’m wrong, but I believe Romney will peak after the GOP convention next week and the race will never be close.

I like Paul Ryan and I feel like this is a move that Mitt Romney had to make. He has been trying to convince the “Tea Party” that he is a conservative. From the beginning, I wish he had run as a moderate. If he would’ve done this, he could have swayed a large number of independent voters.

Romney was a Republican in the Democratic state Massachusetts and he negotiated to forge a statewide health care program. Instead of defending himself, he should have used that as a sign of strength. It demonstrates his ability to negotiate with Democrats. He could have run as a Republican version of Bill Clinton.

President Obama has divided our country like never before and it has resulted in social warfare.

I am getting political in today’s commentary because the outcome will have an impact on the market. From a longer-term perspective, both sides will attack each other and nothing will be accomplished in the next four years. We will drift further and further into debt and our credit rating will suffer. On a short-term basis, the polls will point to a lopsided victory and that will reduce uncertainty.

Instead of spending billions of dollars slamming Obama, I wish the super PACS would simply educate Americans. Very simple math will paint the picture and the ads would not need any political affiliation. Before a running mate like Paul Ryan can have an impact, Americans need to understand how dire the situation is. Very few politicians have the “stones” to speak the truth and to run a campaign based on sacrifice.

Every nation should take pride in their Olympians, they are all winners. Each one of them had to overcome adversity and the sacrifices were enormous. Hard work and pain led to their success. If we all lived by the same standards we would take responsibility for our own lives and the government would play a minor role.

European credit concerns have eased. Stock valuations are attractive and balance sheets are strong. The price action will be very quiet this week and the economic releases won’t stand in the way.

I believe the market will grind higher. Major resistance lies at SPY $142. That is a multi-year high. Option premiums are near historic lows and credit spreads are not viable. One bad news event could spark a move and you have to go too close to the money to get a decent credit. European credit concerns can flare up in an instant.

I am keeping my positions very small. I will day trade stocks and I will look for setups where the stock has consolidated for a couple of months after a nice rally/sell-off and is breaking out/breaking down to a new relative high/low.

The price action today is weak, but there is not anything newsworthy to trade off. The market needs a catalyst and we can expect choppy, light volume trading this week.

Keep your positions small.
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