Get Ready For Decent Earnings – Bullish Week Ahead!

The market continues to march higher. The recent dip has established a higher low and that springboard has pushed us to a new relative high for 2009. In today's chart you can see that each of the recent pullbacks has been brief. Asset Managers do not want to miss a year-end rally and those who are under allocated need to aggressively add to positions. This pattern of higher lows and higher highs is very bullish. With the exception of the Unemployment Report, economic numbers continue to show gradual improvement. Traders are happy with "less bad" and they are focusing on interest rates and earnings. The Fed is committed to keeping interest rates low and the weak Unemployment Report will help them stay the course. Inflation has been minimal and that is not putting upward pressure on yields. This week, the CPI will be released and we should expect a benign number. The FOMC minutes will be released on Wednesday and they should be mildly bullish for the market. Retail sales will also be released on Wednesday. Analysts are already predicting a slow holiday season and a dismal number will probably not spoil a rally this week. Initial jobless claims, Philly Fed, industrial production and consumer sentiment will also be released this week. The economic numbers will take a back seat to earnings releases. Intel, IBM and Google will dominate the tech sector. Each has posted solid numbers and the stocks are trading near their 52-week high. I expect strong results on easy comps and a good reaction. Major banks will also release earnings. Citigroup, Goldman Sachs, J.P. Morgan Chase and Bank of America will post results. Write-downs should be declining and profit margins will be high due to the large spread between borrowing and lending rates. All told, optimism should spark a nice rally. As the market moves higher, option expiration could provide a bullish influence. Option traders will leg out of hedged positions on an intraday basis if they feel confident that a directional move is underway. This will effectively "goose" the market higher. We are in the seventh inning of this rally and I am bullish heading into year-end if we do not see a massive run-up. A nice gradual stair step move can be sustained. This means that you need to take profits during rallies and go to cash. When the market pulls back, you need to buy once support has been established. Stick to this game plan and you should have nice profits over the next two months. If the market stages a huge rally, we could be vulnerable to a sustained decline. Once the top forms, key support levels will be violated as the market rolls over. Profit-taking will set in and it will be time to short. A rally to SPY 120 would start to get very pricey. I have been selling put spreads on stocks that don't announce until after option expiration. This week, I will wait for companies to post earnings and I will sell out the money put spreads on solid performance. This is the calm before the storm and I expect quiet trading today. Overseas markets were positive and we should see a quiet day with a bullish bias.

Daily Bulletin Continues...