Morning Market Thoughts

by DAN Good Morning. The threat from North Korea is finally starting to matter to the market. Investors (and, um….everybody else) are concerned that Kim Jong Un is going to lob a nuclear tipped missile at Guam, a U.S. territory. The logic is undeniable. First, North Korea accelerates their research on nuclear bombs and ICBM missiles. At the same time, they start threatening the US in the most provocative terms. We object, and ultimately get the rest of the world to go along with us (Russia was easy, of course. China…more difficult). North Korea objects to our objection and informs us that, as soon as they can make it happen (which is really soon), they are going to destroy the United States.

Madeleine Albright, where are you when we need you?

The other geopolitical issue on the horizon, with less of an immediate effect, is the tumult down in Venezuela. No need to go into that now, but suffice it to say that the chaotic political situation is probably not going to be resolved by a handshake.

Last night I mentioned that gold wasn’t really reacting to any of this, but today is a new day. This morning, gold is up about 1/2 of percent, though it is still rangebound. But you would do well to watch gold and silver. At least keep it on your radar as a potential trade.

Weibo (WB) reported earnings this morning that were largely in line with expectations. The stock is down just a bit from the close. I noted the other night that, were it not for pending earningss, Weibo would be a great stock to buy because yesterday’s’ breakout was on high volume, and the preceding base was actually pretty strong. That’s still the case, as long as the Weibo bulls decide that earnings were good enough to make them want to own more stock. My suggested be $88.95 — just slightly above yesterday’s intraday high. If the stock pushes to that level, then it’s a bona fide breakout. If you look at the weekly chart, you’ll see the implications for some really great gains.

Now, about this morning. Most of your stocks will gap down, though nothing too dramatic. But if you bought a stock close to support (which is always the goal), then pay attention to that support. You may see the stock fall back into the base and then start to rebound. This would actually be a bullish dynamic that reveals motivated buyers. If the stock gaps down through support (I actually don’t see too many of them, then assume the opening price as your cost basis on a NEW trade. Then, set a stop that’s just 1-2% below the opening price. You will often see the stock open lower, and then immediately move higher as buyers step in to take the supply. If it instead continues to sell off, you are out gracefully rather than riding it lower.

Look, the market is in a very volatile and chaotic phase right now. You know it. You can see it in the way stocks are trading, and in the number of surprise moves you see in various stocks. This isn’t an environment that rewards aggressiveness. Nor is it a market that rewards aggressive risk taking. It’s critical that you understand this because there is an additional danger in this market. The chaotic atmosphere can suck you in. It can prompt you to take big chances in the hopes of a big reward.

Don’t do that. When the market gets choppy, most professionals focus on keeping the money they have. Some of the more active traders like the volatility and seek to exploit that. And if that’s your desire, you should definitely be looking in the forum. We have a few traders who are always making trades on the VIX.

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Laugh of the Day: Kevin O’Leary giving Barney Frank grief over the unforeseen impacts of Dodd-Frank (“DF”) on the regional banks. Anyone with even a modicum of knowledge about the financial markets knows that a major change in the banking sector since DF is that the big banks have been buying the regional and local banks at an alarming clip, thus becoming even bigger. Why is this happening? Because the regional banks do not have the finances to comply with the reams of regulations and rules imposed by DF. Barney, as is his habit, deflects, denies and lies. All politicians lie (If you are reading this and take offense because you are a politician and always tell the truth, I just caught you in a lie). But Barney Frank does it with gusto, supreme confidence, and ferocity. Despite O’Leary’s aggressive questioning, he didn’t lay a glove on Frank. They never do. He wears them out.

Don’t let the market wear you out!

–DAN

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