Morning Market Thoughts
Good morning. Futures are pointing to a slightly higher open this morning. After Friday’s weakness (which really wasn’t that bad), it’s comforting to see stocks up a bit this morning. It leaves us close to the top of the trading range, and at least perpetuates the continuing building of a base. The wider the base, the firmer the ground under the hooves of the bulls. And the firmer the ground, the higher the bulls can jump when it’s time to move higher. (Bulls really can’t jump very high, but I thought the analogy worked, so I just went with it).What is just a bit bothersome about today’s higher open is that the reason seems to be that the legislature has reached a new deal to fund the government until the end of the fiscal year (Oct 1st, I think), and avoid a government shut down. I’ve always found that government shutdowns were typically good for the market. No politics — just fact. The market hates uncertainty. It really LIKES the status quo. So when the politicians are taking a well-deserved break from their very difficult jobs, nothing really happens. And when nothing really happens, money managers can worry about other things, like earnings, business conditions, new products, the consumer, inflation, etc.
There are always things to worry about. The fewer they are, the higher the market climbs. So we want a Goldilocks Wall — enough worry to get a foothold to climb higher, but not so much worry that the wall will crumble of its own weight. My father would have liked this market — we used to say that he would even worry about there being nothing to worry about. The market is a bit like that. Always something to worry about — but you’ve got to keep the big picture in mind so that the worry doesn’t keep you out of opportunities.
I notice that Amazon stock is trading up about $6 this morning. That seems like a pretty big jump, considering that Amazon closed about $6.60 higher on Friday. Wow! But then…when you look at the details, it’s a bit more sobering. Amazon is now trading just a bit below $930. On Friday, the first 4-1/2 hours of trading were at significantly higher levels. So despite an apparent jump at the open, I would be leery of jumping in on th is golden opportunity to get in on the reversal. If it’s a true reversal and a rare buying opportunity, we’ll know soon enough. I suspect it’s going to be an oversold bounce — a bull trap.
Make your own decision, but I’m just watching it to see if there are more opportunities to short calls against the stock.
I’ve received a bit of feedback about my “delta neutral strategy” video this weekend. I’m glad that you “got it”, and that it works for you. I think even those who do not trade options should know basic option concepts. It will bleed over into your trading.
I’ll see you in the forum.
–Dan
Market Update