Bears are in full retreat, and bulls know it. The S&P 500 (SPX) surged Friday to close at 3,993, a gain of 0.9%. For the week, the benchmark index added 5.9%, states Jon Markman, editor of Strategic Advantage.
Everything is finally falling into place for bulls. Seasonally this is the strongest stretch for stocks, and the lighter Consumer Price Index report earlier in the week is pushing bond yields lower. The yield for the Ten-Year Treasury Bond collapsed this week to 3.8%, the lowest level since early October. That takes a lot of pressure off growth stocks’ valuations.
Bulls are winning the narrative. Peak inflation is a great story to tell; it coaxes investment dollars from the sidelines, and out of safer alternatives. Healthcare, food, and consumer staples stocks slumped Friday as professional money managers sold defensive shares to fund more aggressive year-end purchases.
Pros are going all-in. That is a bullish sign, at least in the near term. I’m looking for bears to concede a rally that should lift the S&P 500 to its 200-day moving average of 4,080. Every pullback ahead of that advance is a buying opportunity. There is critical support at 3,790.
The Trade: Current position is ProShares Ultra S&P 500 (SSO), a leveraged ETF. The SSO was added on November ninth at $43.40 and closed Friday at 48.65—up 12.1% from the entry level. Awesome.
Now place an order to sell the entire position at $52.90 and place a new stop loss order at $44.10. If this trade works, the potential upside target is +21.9% and the potential downside risk is a gain of 1.6%.
