Morning Market Thoughts

by DAN Good morning. Futures are pointing to a sharply lower open today, with the Nasdaq down 37 points, the S&P down 11, and the Dow Industrials down 90.and the Dow down. When I woke up about an hour ago, the picture was even worse. So…as we approach the opening bell, I think traders are starting to see this pullback as yet another buying opportunity in a string of buying opportunities. Today is the 30th anniversary of the 1987 crash and that anniversary seems meaningful to some. I think a 30th wedding anniversary is meaningful…but the 30th anniversary of a big move in the financial markets is just an interesting thing for the financial pundits to discuss between Trivago (TRVG) and ETF commercials. It means nothing.

Spain is cracking down on Catalonia’s bid for independence and that has the EU worried, though I’m not sure how or if that impacts US markets. Doesn’t seem like it to me. Asian markets are weak due to concerns of excessive debt in China. Debt is an interesting concept, but it’s something that doesn’t seem to matter over here in the US, as the interest per year on our $20+ trillion debt is more than $271 billion, with a debt as a percentage of GDP at 105.89%. As noted yesterday, the Fed is hamstrung. They won’t be raising rates much anytime soon (i.e., forever) because the rise in Treasury rates would turn us into Greece on steroids (no offense to Greece, of course). The cost of refinancing US debt would be crushing. In my view (steeped in a mixture of cynicism and common sense rather than experience in the field of banking and economics), this is why the Fed is focusing on reducing the balance sheet rather than raising the Fed Funds Rate. The result might be the same, but hope springs eternal that the Bernanke Experiment can somehow be unwound without any impact on the economy.

Getting back on track, the news from overseas is negative, but I doubt it’ll have any negative impact on equities that will last longer than the 15 minutes following the opening bell. The Dow 30 is extremely overbought after yesterday’s blowoff, and the low open this morning will won’t even come close to reversing yesterday’s 160 point gain. While I have doubts that the pre-market weakness will pick up steam, I do think that we’ll see some consolidation for a period of time as the recent acceleration in buying runs its course.

Always check your stop levels before the open to ensure that they aren’t hit on a low open. When your stop is hit at the opening bell after the stock gaps down below your stop price, you wind up selling at the opening print rather than your stop price. Most stop orders (including mine) are market orders where your stop becomes a market order when it’s hit. You can place stop limits where a triggered stop issues a limit order at your preferred price. I just use market orders because I typically trade liquid stocks, and I always check them before each trading day begins.

Hang tough, and don’t overtrade. If the trend on your stock is still intact, then just leave it alone.

I’ll see you in the forum, where we will probably have an opportunity to short Adobe (ADBE), which is gapping up more than 5 standard deviations from yesterday’s close. In more than 20 years of trading, I’ve never actually seen a stock gap up 5 standard deviations and keep going. This might be a first, but I doubt it.

–Dan

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