Watch my WEBINAR RECORDING from Wednesday night. Lots of great trade ideas.
Yesterday, the market started off on sound footing and once the direction was established, it continued to grind higher. The volume is very low and so is the level of conviction. Asset Managers don’t want to chase at an all-time high and some might be willing to take profits after a 25% run this year. The bid is strong and these two forces should offset each other.
Thanksgiving will break up the action next week and volumes will be very light. There are not many releases and the action is going to be dull. Look for an upward bias.
The economic releases this week were decent and the FOMC did not throw us any curveballs. Tapering, the CR, the debt ceiling and the impact of Obamacare are still months away. These storm clouds are distant and they won’t spoil this rally.
Shorts have taken a beating this year and they won’t stick their necks out in a light volume environment. Seasonal strength will attract buyers and the market should inch higher.
Interest rates remain low, dividend yields are higher than the 10-year yield (making stocks relatively attractive), global economic growth is moderate, central banks are printing money and corporate cash flows are at record levels.
The macro backdrop is bullish, but we’ve had a nice run. Headwinds will start blowing towards the end of December and the easy money has been made.
I am selling out of the money put credit spreads on strong stocks. This strategy allows me to distance myself from the action. It also takes advantage of a strong market bid and time decay.
We are breaking out to a new all-time high and call buying will also work. Stay in the money where the deltas are high. Don’t expect explosive moves and know that time decay will be an issue if the momentum slows.
Keep your size relatively small. In a light volume market the sentiment can change quickly.
The price action this morning looks good and stocks should inch higher today.