Morning Market Thoughts

by DAN Good morning! Futures down a bit this morning, which is not necessarily a bad thing. Another successful test of support would be healthy and allow the S&P (and other major averages) to continue to carve out a higher base that could lead to the next leg higher.

I view the current market as having above-average risk because both breadth and market sentiment are bearish. Fewer stocks are advancing, and the smart/dumb money indicator shows that neither the “smart” money nor the “dumb” money is particularly confident that the rally will continue, but neither group is excessively bearish either. The smart money is more bearish than the dumb money, but not enough to reveal any potential for a big move higher. In the final analysis, there’s just nothing here to breed excess sentiment. Instead, it’s kind of a non-issue.

Amazon (AMZN) and Tesla (TSLA) are both slightly lower in pre-market trading. Neither is threatening to end their Phase 1 breakouts. But both are significantly extended. So protect any short-term trading positions you have with reasonable stops, and with fractional profit taking.

Alphabet (GOOGL) is also lower and testing its 50-day moving average again. Amazon’s (AMZN) ad business is picking up steam and this is impacting ad revenue of Alphabet. Nice to be owning AMZN, but GOOGL? Um, not so much.

Remember that markets go up and down. Short term swing traders strive to capture the middle of market swings. You can spot likely support levels and start buying stocks when support asserts itself. But you start small and build your position as you opinion is vindicated by the market. But as for tops? Those are harder to spot — sometimes they are obvious, but most times they are not. So you start reducing your position size as the market hits a resistance level. You resign yourself to the fact that you will not top tick the market; that you will leave some on the table; that profits booked are much better than being long hope.

Don’t be holding too many positions to watch. Be comfortable with your holdings. If there is one stock that’s always causing you aggravation, then kick it out of your portfolio. You’ll feel better; and you’ll trade better.

See you in the forum.

–Dan

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