My forecast has been spot on and we nailed this rally. Please CLICK HERE to review my blog on Investimonials. Out of thousands of daily readers, only two of you took the time when I asked last week. I put a lot of time into my research and I am motivated by your comments. I need 11 more reviews to get over 90. When I get there, I will post a trade with entry and exit instructions in my blog. Make it happen today and we’ll take advantage of this momentum.
Yesterday, the market convincingly broke through major resistance and the momentum favors the bulls. Stocks continued to inch higher throughout the day and the Fed’s statement fueled the afternoon rally. In the last hour of trading, the S&P 500 jumped 15 points when UBS “accidentally” posted its bank stress test results early.
The Fed said that economic conditions are improving and that the job recovery is on track. They feel that high energy prices could lead to inflation and that will squash any hopes of QE3. An improving economy is a bullish sign and I’m not worried about higher interest rates.
Bank stress tests exceeded expectations for the most part. Of the 19 banks, 15 were deemed strong enough to survive an economic depression. The other four do not need to raise capital; they simply need to beef up their balance sheets in coming months.
China’s Finance Minister said that they will not remove real estate investment restrictions. They still feel prices are elevated and they want to avoid a “housing bubble”. This weighed on China’s market and it was down 2% overnight. On a positive note, the PBOC will lower bank reserve requirements. Inflation has declined to its lowest level in years and we can expect monetary easing in future months.
The EU is a joke. Germany’s Finance Minister backtracked and said that a big firewall to prevent contagion is not needed. The ECB temporarily bought them time with the LTRO and now that the pressure is off (interest rates have pulled back), Eurocrats are ready to go on vacation. They have not even remotely addressed EU fiscal policy reforms.
By mid-summer, European credit concerns will move back on the front burner. Structural deficits will drag sovereigns further into debt and banks will avoid longer-term bond auctions.
For now, everything looks grand. Credit concerns have subsided, China is easing and US job growth looks strong. Stock valuations are attractive and the market has broken out to new multiyear highs.
Tomorrow we will get a decent round of economic releases. Initial claims, Empire Manufacturing and the Philly Fed will be released. I’m expecting solid results. We will also get employment statistics out of Europe. They should be dismal, but bad news is expected and any surprise should be to the upside.
The calendar next week is pretty light. On Thursday, FedEx will release its results. It is considered an economic barometer and transportation stocks have lagged. We need this sector to rebound. If it does, this rally could last another month.
I’ve been encouraging you to stay long. During last week’s pullback I mentioned that I sold my VIX calls during the volatility spike and I use that opportunity to buy calls on strong stocks. My positions were not hedged and I made excellent money yesterday. I added a few more call positions Tuesday as the market inched higher and I had about 40% of my normal position on.
I don’t see any bad news on the horizon and I’m not overly anxious to take profits. Asset Managers that are under allocated will be buying stocks on any pullback and I believe those dips will be shallow and brief. By the same token, I am not adding to my bullish positions. If we get another strong day or two, I will start taking profits.
Look for stocks that are breaking through resistance. Go to the Live Update table in the DAILY REPORTand click on the charts. This only takes me 30 seconds to identify strong candidates.
Keep your size small and stay in control. This is a time to be bullish, but don’t get overly aggressive.
Today the market will test the downside a little and we could see some profit taking. Yesterday’s news was not that great and it did feel like panic buying. By the close today, stocks should recover and Thursday’s releases should generate a small bid.