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PRE-OPEN MARKET COMMENTS TUESDAY – Yesterday the S&P 500 rallied almost 100 points on news that the government was likely to reopen. We don’t know the current state of the economy or the damage inflicted by the shutdown. It was starting to take a toll and by some estimates Q4 GDP will be 1.5% lower than it would have been. If all goes well, the government will reopen this weekend.
Ignorance is bliss. The economic numbers were declining before the shutdown and the absence of this data could have buoyed the market. Once the government is reopened, they will start collecting data. Thanksgiving is two weeks away and I don’t believe there will be any material economic releases before then. That news vacuum favors the current trend. Seasonal strength will also provide a strong bid.
China has lifted rare earth restrictions for one year and shipments will resume immediately. This is good news and there could still be some supply disruptions.
Earnings reactions have generally been good.
From a technical perspective, the market tested the 50-day MA and it bounced. This is a good entry point for longs. I still prefer passive engagement so I am selling OTM naked puts on strong stocks. I am going 2-4 weeks out and I am 10% below the current price and I am looking for returns in the 8% range. Stocks with high IVs and strong support are ideal candidates especially if they held up well during the last week. If you are slightly more bullish, you can go closer to the money. They key to the strategy is to be willing to take assignment.
This is the time to sell premium and to enter longer term swing trades. The market is likely to float higher on very light volume and the intraday ranges are going to collapse. We often see a gap up on the open and then the market sits the rest of the day. If you do not have income generating swing trades on, you will struggle to make money the rest of the year. If you don’t trade options, but strong stocks. If you are nervous, buy less.
I also like day trading stocks from the long side. When the market gaps up, wait for a dip. When the market gaps down, be ready to jump into action once support has been confirmed. Yesterday more than half of the gap up was preserved. We got the dip and that was a fantastic entry point for longs.
This is a banking holiday so the action will be light. The market staged a big rally yesterday and that increases the odds that this will be a day of rest.
Europe was up slightly and Asia was down slightly. There is no overnight tailwind.
Support is the low from Monday and resistance it the high.
HAPPY VETERAN’S DAY!
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