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October 18, 2013  Fri 7:10 AM CT

SPX: SEE CHART GET CHAIN FIND STRATEGIES
Stocks are higher again today as buyers return to the strongest bull market in a generation.

S&P 500 futures have been climbing in the last hour and are now up almost 0.25 percent. Europe is trading similarly, and Asia was mostly higher in the overnight session. Commodities, currencies, and bonds are also trading benignly.

The S&P 500 closed at an all-time high of 1733 yesterday, slightly above its record from a month earlier, as politicians in Washington ended a government shutdown and reached an agreement to raise the country's debt ceiling. That let investors return to a market that remains underowned and is hampered by few major obstacles.

Almost every sector has benefited from the strength, but our researchLAB market scanner shows certain groups have emerging recently. Financial guarantors, highly leveraged to asset quality, have outperformed as loan delinquencies fall. Banks in once-distressed European countries like Spain and Greece have been strong as those countries recover. Oil refiners have benefited from a widening of the spread between Brent and West Texas Intermediate crude oils. Owners of wireless towers have also been gaining following a long period of underperformance.

Metals, solar energy, and airlines have also continued longer-term uptrends. There also seems to be a shift underway toward international equities.

The environment is increasingly favorable for stocks, with the economy growing fast enough to support profits, but not fast enough to warrant higher interest rates. China, for instance, said last night that third-quarter economic growth accelerated to 7.8 percent, but industrial production slowed to 10.2 percent in September. Both matched forecasts, while retail sales unexpectedly slowed.

Bond yields are also set to decline again in the United States following a sharp drop yesterday. If that trend continues, it will likely benefit housing, real-estate investment trusts, utilities and telecoms.

The most recent earnings reports have also been positive. Google is poised to open 10 percent higher after the Internet giant's quarterly results blew past expectations. Morgan Stanley is up more than 2 percent after its profit and revenue beat forecasts. General Electric also rose after a shift to oil-and-gas equipment fueled a record backlog of industrial orders. Schlumberger is also climbing as the global energy boom drove results.

Oil is up about 1 percent, copper rose almost half a percent, and agricultural products are mostly higher. U.S. dollar weakness is the main theme in currency markets, with euro, Australian dollar, and Japanese yen all up slightly against the greenback.
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As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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