Last week the market had a heavy dose of news and it is still digesting it.

PRE-OPEN MARKET COMMENTS MONDAY – A week ago the market shot higher in anticipation of good news from the Fed and mega cap tech stocks. It got what it wanted and those gains have held.

The Fed cut rates by 25 basis points and they are open to another rate cut in December. They also ended quantitative tightening (QT) which is another form of easing. The Fed’s overnight repo facility has been tapped frequently in the last week and that could be a sign that liquidity is tight. They don’t have any economic data because of the shutdown and I believe they will err on the side of caution. The market is addicted to easy money so this should keep buyers engaged into year end.

The shutdown continues and both sides are digging their heels in. Shut downs are normally discounted by the market because politicians reach an agreement at the last minute. We are reaching a point where the market is going to care. The shutdown is going to impact economic activity and the inability to fund the government could prompt ratings agencies to lower our credit rating in the future. Uncertainty is never good for the market.

This week we will hear from Challenger Gray and Christmas and ADP. Last week ADP gave a preliminary report and they said that job growth in October was 55K for the private sector. This is much better than the -32K reported the previous month. Challenger reported that layoffs improved slightly in September from the prior month, but they were still negative. Year to date, planned layoffs have not been this high since Covid-19. One of the key datapoints was that seasonal employment was 25% of what it was in 2024. To be clear, not down 25%, it was a quarter of the prior year’s level. This is pretty daunting and it could be a sign that holiday spending will be down considerably. These are the only jobs numbers we have and they will be important.

Earnings have generally been well received, but good news was expected. Stocks are doing well to hold recent gains. This will be another busy week of releases.

Light volume gaps up can easily be reversed. Does that mean that last week’s gains will be erased? No. It means that I am going to passively trade this move. The odds of a dip are fairly high and I want to distance myself from the action. From a trading standpoint, this is NOT a time to be buying short term call premium. The market is not going anywhere fast and a minor drop that lasts a week will drain the life out of those options. The market drops twice as fast as it rallies. That means a one week drop will take two weeks to recover. Do you want to endure three weeks of time decay?

Our best trading scenario is a market drop to previous resistance at SPY $674. We would like that pullback to be stubborn and when that level is tested, we want to fly off of it. That would be a sign that Asset Managers who missed the breakout are anxious to get in. That would be an excellent pattern and buying opportunity. If that retest turns into a more substantial decline and $674 fails, we wait.

I will be selling out of the money naked puts on stocks that I want to own at lower levels. If I am assigned, I will be buying those stocks 10-20% below current levels. If I never get assigned, I will generate returns in the 5-8% range for the next few weeks. That is a risk/reward ratio I am comfortable with given the current market back drop.

I will day trade strong stocks, but I won’t chase gaps higher. I need to enter well. There have been weak stocks as well that can be shorted, just don’t overstay your welcome and set passive targets. I am preferring to stick with the long side.

Support is the low from Friday and resistance is SPY $690.