It Is All About Perception. EU Stays Progressive and PBOC Continues To Ease – Buy Calls

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

Yesterday, the market staged a nice rebound after selling off on Monday. Spanish banks received $125 billion in aid over the weekend and I did not understand the decline after the news. This was the best case scenario for Spain and for the first time, the EU got ahead of the curve.

In recent months, the ECB has injected $1 trillion into European banks via LTRO1 and LTRO2. This provided much-needed liquidity. Furthermore, the IMF raised €500 billion and it now has more than $1 trillion in its coffers. During the next few weeks it will try to raise another $400 billion. All of this money should backstop European credit concerns.

The political race in Greece is tight. However, pro-bailout candidates (New Democracy) are projected to win by a small margin. This will spark a relief rally next week. Greece still has problems and it will require additional bailouts.

Interest rates in Spain and Italy spiked after the news this weekend. I believe they will pull back and the rhetoric from the troika will be progressive. Every time that European credit concerns have waned, the market has rallied.

China released economic data over the weekend. It missed expectations by a small margin. A key Chinese advisor projected that Q2 GDP would fall to 7%. He is the most bearish economist. Even if his forecast is correct, the PBOC has reduced bank reserve requirements and it has lowered interest rates. Furthermore, the government will launch an infrastructure spending program. These actions will revive economic activity.

Today, retail sales (-.2%) and the PPI (-1%) came in lower than expected. Gasoline prices have declined and that lowered retail sales. It also put downward pressure on inflation. This is a long-term positive for consumer spending.

The economic news the rest of the week will focus on manufacturing and employment. Both will have a slightly negative bias.

As long as economic conditions are stable and European credit concerns are pacified, the market will rally. Stocks are attractively valued and Asset Managers will bargain-hunt at this level now that support has been established.

Yesterday, I bought calls across all of my services and I am adding to positions this morning. Stocks tested the downside and they quickly rebounded.

A week ago, I could make a case for a market move in either direction. The actions by the EU and China have influenced my forecast and I am looking for a nice, sustained rally.

The economic news will be soft, but traders will look past these numbers. It’s all about perception. If the market believes that Europe will stay ahead of the curve and China will stimulate its economy, stocks will rally.

Buy calls and add to bullish positions.

Tonight I will be hosting a webinar and it will feature One Hot Option Trade. This is a paid even REGISTER NOW!
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