Morning Market Thoughts

by DAN Good morning. Today, the futures arepointing to a lower open, with the S&P down 10.75, the Dow down 107, and the Nasdaq down 18.50. So yesterday’s pullback is continuing today. I’m being very discriminating in taking new positions in this market. The junk bond market has been selling off, which is concerning. The NYSE advance/decline line peaked on October 20th, while the Nasdaq advance/decline line peaked more than a month ago, on October 5th. This narrowing breadth should not be ignored.

These internal dynamics of the market, including the trends of the major indexes, are really important for getting a general sense of what the market is doing. But unless you are an index trader, your focus should be on individual stocks. If you insist on finding low risk entries on trending stocks, you’ll find it easier to make money.

When you have trouble finding new stocks, it should tell you something. Fewer opportunities reflect a tired market. And by remaining resolute in your discipline, your most difficult task will be…remaining resolute in your discipline. Many traders suffer from the need for constant action. That’s a real problem. Shouldn’t you really be looking for profitable trades rather than action? When you can’t find opportunities, you protected from a market correction because you just aren’t that exposed.

Conversely, when trading opportunities abound, the market is strong. Your most difficult task is finding the best opportunities in a field of opportunities. We aren’t in that kind of market. But at some point in the future, we will be. Don’t spend your time wishing for different conditions. It doesn’t help. Wishful thinking often results in confusion — you see one thing, but it doesn’t match what you are hoping to find. Once confused, you are vulnerable to making rash decisions. Don’t do that.

Thoughts on a few stocks:

Target (TGT) is down this morning, despite beating estimates for earnings and revenues. They also raised their full year earnings forecast. But the fly in the pancake syrup seems to be the weaker outlook for the holiday season. The stock had advanced about 30% in 4 months, and if it opens where it is currently trading in pre-market trade, it’ll still be up about 18.5% since the June low. If you are looking for opportunities in the retail sector, I’d suggest Home Depot (HD) or Best Buy (BBY). They are both in volatility squeezes. Best Buy reports earnings tomorrow.

Roku (ROKU) is down again in pre-market trading. I discussed the trading dynamics of Roku at great length in last night’s training session. If you are interested in learning to trade these types of rocket ships, you may want to take the time and review the video. It’ll help. These short squeezes can be real money makers if you know what you’re doing. But they can be real money takers if you do not. You should not be holding this stock now. The short squeeze is over, and the stock will go much lower. Even after yesterday’s gap and crap (closing down 13.5%), the stock is still outside the upper Bollinger Band. That’s pretty remarkable. I can’t recall a stock falling this much in one day and STILL being more than 2 standard deviations away from the 20-day moving average. I would short the stock even now…if I could borrow shares.

I’ll be in the forum this morning. Hope to see you there.

–Dan

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