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Market Sharply Unchanged Overnight
www.oneoption.com
The S&P 500 made an all time high yesterday and the gradual float higher continues.
PRE-OPEN MARKET COMMENTS THURSDAY – For the time being, the market doesn’t care about the government shutdown or the lack of economic data points. If politicians don’t strike a deal in the next week I believe that investors will start to reduce risk. These shutdowns don’t happen very often and they are typically resolved quickly. The market is counting on that.
The longest shutdown happened during Trump’s first term and it lasted over a month. The market was coming out of a deep drop and it continued to recover those losses during the negotiations. This time the market is at a new all-time high and it is priced for perfection. Valuations are very high by historical measures and there is room on the downside. Our national debt has reached extreme levels and it’s not good for our credit rating when politicians can’t agree on a budget or a continuing resolution that kicks the can down the road.
The FOMC Minutes yesterday showed that officials are split on another rate cut this year. I view that as hawkish. The big drop in jobs this summer showed a well-defined trend over a period of months and there has not been a single data point to suggest that economic conditions improved during September.
We don’t trade the fundamentals, we trade the technicals. The market instantly erased the red candle from two days ago and that is a sign that buyers are still engaged. I feel like Bill Murray in Caddyshack during the Baby Ruth scene. You proceed with caution, wait for confirmation and take a bite.
I am day trading with some overnight positions. When the market gaps up, I am taking gains. When the market is well above the EMA 8 I am avoiding overnights and I am selling out of the money puts on stocks that have good upward momentum and that have rich option IVs. I am keeping my distance and taking advantage of the market trend higher. If it has a hiccup, my naked puts are out of the money and they are not a concern. If the market has a nasty overnight move, I am ready to short futures as a hedge. That’s easier than buying back my put options on a number of positions and navigating wide bid/ask spreads. I am not expecting sustained selling pressure. When support is established, I will close the futures position and manage my naked put positions.
Earnings season will start next week and we’ll see if banks are showing any signs of stress. In particular I will be gauging bad loan write-downs and credit card delinquencies.
Favor the long side and tread cautiously. Seasonal weakness will shift to seasonal strength in two weeks. Asset managers don’t want to miss a year end rally and they have not gotten a dip. That means that those who have been waiting for one will be a bit more aggressive.
Support is the low from yesterday and resistance is yesterday’s close + a 20-day ATR for SPY.
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