Morning Market Thoughts

by DAN Good morning.

The market has opened higher this morning as traders act on the optimism that the tax bill is likely to pass this week. Midcaps and small cap stocks ($MDY and $IWM) are the strongest, which indicates that traders believe that the tax changes will benefit smaller businesses. Of course, the S&P 500 ($SPY) is in third place…so I guess the big companies are going to make out OK too. On my list of ETFs, only utilities ($XLU), oil services ($OIH), and semiconductors ($SMH) are weak. So this is a broad based rally and is rewarding those who have chosen to stay in the market rather than pack it in and take the rest of the year off.

A few stocks to mention:

CSX Railroads ($CSX) — I think this stock has bottomed after the market’s reaction to the sudden death of CEO Hunter Harrison. Jim Foote, COO, was named as new CEO. The current range was in the high $40’s to high $50’s. The stock gapped down to the 200-day moving average and hit a mass of buyers. I think $51.50 is the bottom and represents a selling climax. This is typically not my type of trade, but I bought some stock at the open and have a very tight stop at $51.40.

The power moves I discussed last week in Riot ($RIOT) and Roku ($ROKU) are working well this morning. You should be raising your stops on these stocks to at least break-even. Set them tighter to your own risk tolerance, but don’t allow these powerful moves to turn to losses. Lock in some profits too. Set some fractional (i.e., “partial position”) stops at higher levels.

I’ll be in the forum today. There is a lot happening and I want to seize every opportunity that presents itself so that I can maximize my profits this year. No unusual risks or aggressive trading. Instead, I’m just focusing on prosecuting my trading plan and finding what works.

See you there.

–Dan

Market Update