Just A Nice Boring Rally. The News Is Very Light This Week

March 19, 2012

The news over the weekend was very light and overseas markets are flat. The S&P 500 has broken out through major resistance and it is making multi-year highs. Bulls have the momentum and there is nothing to stand in the way of this rally.

China released its housing numbers and they were flat. That is actually a pretty good sign since they have been declining in recent months. Thursday is shaping up to be the big news day.

China and Europe will release their flash PMI’s. If China can improve on last month’s gains, global markets will move higher. FedEx will release its earnings on Thursday and it is considered an economic barometer. Transportation stocks have lagged and this news could spark buying.

Eurocrats are still talking about a firewall to prevent contagion, but not much progress is being made. Interest rates have declined and they have a little breathing room. The EU doesn’t act until it has to and I still feel we were dangerously close to the financial meltdown in November. The ECB saved the day and they will go back to the LTRO “well” if they have to.

Credit concerns should be minimal for the next few months.

Stock valuations are attractive and money is rotating out of fixed income and into equities. There has also been a shift out of dividend paying stocks and into growth stocks. This trend will continue as Asset Managers get more aggressive.

High oil prices could become a concern if they stay elevated over a period of months. For now, investors don’t seem too worried about inflation. As long as we have economic growth, some inflation should be expected.

I am long calls and my positions are not hedged. I believe the market will continue to grind higher each day. I’m not looking for any explosive moves and I only have about 40% of my capital allocated. I would like to add to my positions on a pullback, but I don’t believe we will get one. The bid should remain strong and Q1 earnings season is only a few weeks away.

I am rotating into cyclical stocks and commodity stocks. They have lagged during this rally and when they catch fire, they will jump quickly.

Look for lackluster price action and a grind higher this week.
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