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News Vacuum For the Next Week. That Is Good For the Market. Look For Rotation - Buy Calls

Posted by Pete Stolcers on February 6, 2013

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The market is poised for a nice controlled rally. We will open on the lows and close near the highs of the day. If the move gets overextended, we will see a light round of selling. Asset Managers will buy dips, but they will not chase.

The market staged a huge rally Friday after a decent jobs report. The economic news all week was positive and the S&P 500 made a new five-year high. News of political corruption in Spain sparked a light round of selling Monday morning. Asset Managers pulled their bids so that they could gauge the selling pressure. If they saw profit taking, they would hold off on new purchases. The volume was light on Monday and investors bought the dip yesterday.

The rally Tuesday got a little “hot” and we saw selling late in the day. That spilled over this morning and prices have stabilized. I believe we will see a very controlled rally the next few weeks and the market will not get too far ahead of itself as we approach the all-time highs.

ISM services came in strong yesterday. Tomorrow the ECB will meet and I’m not expecting any major developments. Initial jobless claims should be in line and China will post its trade balance Thursday night. These are all minor events and they should not have much of an impact on the market.

We are heading into a news vacuum. Next week, China’s market will be closed to celebrate the New Year. Economic releases are light and earnings season is starting to wind down. No news is good news for the market and momentum will carry it higher (shorts will not stand in the way).

The sequestration deadline is a month away. Obama’s press release yesterday spooked investors, but the market will give DC the benefit of the doubt. We saw this for the fiscal cliff and the debt ceiling. Republicans have been humbled and I don’t believe they will dig their heels in. Most of the spending cuts are defense-related and they will be willing to negotiate. I could be wrong, but we don’t have to worry about it for a few weeks.

Credit risks are low, global economic conditions are improving, earnings have been decent and stocks are attractively valued. Asset Managers will rotate out of fixed income and into equities. They want to buy dips, but they might miss the boat if they wait too long.

Look for a steady grind higher. If the market gets ahead of itself we will see a brief round of selling. The dips will be shallow and brief.

I don’t see anything that will stand in the way of this rally the next few weeks.

Look for rotation and breakouts through horizontal resistance. Buy calls and ride the move until the momentum stalls. Take profits and repeat.
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