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Oct 17

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Trendtrend

If there is one thing that is certain right now, it is the trend of this market! The trend is overwhelmingly to the upside. Despite the circus that was our Government the last two weeks, the market was UP about 3% during the shutdown! While I was expecting more of a downside move during the shutdown, the trend was never broken. The market traded as if an agreement by the two parties in our Government was a foregone conclusion. While it did come down to the last minute, it was done. The Government was open today for the first time in about two weeks. While this provides this particular headwind out of the market for now, it will return in January. We may have to go through this again in about 90 days. While a pull back in this market may be close at hand, I don’t expect the downside to be very much. We now have several very strong tailwinds to help push stocks higher. First, the Government shutdown, and debt ceiling are out of the picture for now. Second, due to the shutdown, this puts the Taper from the Quantitative Easing out for the foreseeable future, and finally, Hedge Funds are strongly under performing the market. These under performing Hedge Funds will be playing catch up, pushing stocks higher. Also, since the Taper is off the table, I see interest rates stable, to slightly lower going into the end of the year.

Trend: Stocks

As I mentioned above, the trend for the stock market is clearly higher! The market has traded higher all year, climbing the wall of worry from one crisis to the next. I mentioned all the the main catalyst’s to move the market higher above. From looking at the chart, it appears that the S&P may move towards the 1,775-1,825 area. Not to say this is going straight there, it never does. From now until January, you can feel confident in buying the dip’s. To add some alpha to your portfolio, focus on some option strategies. I prefer bull put spreads and bear call spreads. Since the trend is up, focus on the bull put spread. I also like diagonal spreads on strong stocks. The stock’s I would focus on to bring in the most income, are the market general’s. These are the stock’s that have lead the market higher, and will continue to do so. These are also the stocks that the under performing Hedge Fund’s will be placing their focus on to play catch up, thus run them higher. The stock’s that I am talking about are: PCLN, NFLX, CMG, LNKD, GOOG, and AAPL. Yes, there are other’s. Other area’s that I would pay particular attention too are the commodity area, such as gold, miner’s, and coal. These sector’s have been beaten up, and have not participated on this strong market run. Stocks that you may look at here include BTU, FCX, DVN, and ANR.

Trend: Bonds

Considering all the hoopla with the Government shut down and the debt ceiling debate, bonds were volatile, but in a tight range. Today, however, interest rate’s fell to 2.58%! As I mentioned in previous commentaries, I thought that this key interest rate would fall to the 2.5% level. We are close now, but I would expect it to touch that level, and establish a new trading range between the 2.50-.80 level through the first quarter of next year. With this thought, I do not see the need to hedge interest rate exposure until March of next year.

Author Sean Rhodes is an expert in financial markets and helping you manage your money. For a no-risk consultation, check out Sean at the following link for more information and expert advice on investing in equities and helping clients follow the market trend, and profit from it!

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