Stock Market Is Addicted To Easy Money and the Next “Fix” Is Coming

October 12, 2020
Author: Peter Stolcers, Founder of OneOption

Posted 9:30 AM ET - The stock market is grinding higher on the notion that a stimulus bill will happen one way or the other. If politicians can't agree on a deal before the election, it will be the top priority for the winner. The market is addicted to easy money and it only cares that the next "fix" is coming soon. Earnings season will begin this week. Profits are expected to decline more than 20% year-over-year, but that is better than the 25% drop that was expected for Q3 a few months ago. Only 69 companies in the S&P 500 have provided guidance (down from 104 companies typically). Banks have beefed up balance sheets in anticipation of bad loan write-downs and they will dominate the earnings scene this week. The Coronavirus has been very stubborn and we are heading into flu season. It's estimated that there is $35 billion in unpaid rent and state and local governments will have a tax revenue shortfall of $560 billion. The public sector employs 14.5% of the US workforce so cuts to state and local governments should be expected. Amazon Prime Day starts tomorrow. Target, Best Buy and Walmart are getting in the act by offering big online savings. Retailers are hoping to spread out retail sales ahead of the holiday season. Big tech companies are under fire by the EU/US law makers. Antitrust laws are being considered and last week a House subcommittee said Congress should consider breaking up some of the companies. From a technical perspective, the market wants to go higher and looks poised to challenge the all-time high. Stock valuations are rich at a current P/E of 23 and I prefer to sell out of the money bullish put spreads that expire before the election. I am focusing on stocks that have a tendency to rally into earnings announcements and I am selling these bullish put spreads below technical support inside of a three week window. This strategy allows me to take advantage of accelerated time decay. Relative strength, heavy volume and strong technical support are common to all of my picks. I suggest being relatively passive given current valuations and a backdrop filled with uncertainty. Day traders should wait for the bid to be tested this morning. Once support has been confirmed, buy stocks with heavy volume and relative strength that are breaking through technical resistance. Chinese stocks have been particularly strong and their economy has a head start on the rest of the world. Heavy Buying, Relative Strength 30, and Bull Run are my favorite Option Stalker searches. Today is a banking holiday and the volume should be light. I'm expecting a fairly tight trading range and lower than normal volume. There wasn't any incremental news over the weekend to fuel a big rally today. In my opinion, this is pure momentum and we rallied above key technical levels last week. Support is at $345 and $342.50. Resistance is at the all-time high. . . image

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