Same Strategy Continues To Work. Day Trade the Rally – Keep Overnight Risk Low.
I have been getting a lot of questions on how to day trade the stocks that I am referring to in my comments. WATCH THIS 5 MINUTE VIDEO I recorded this on the open today. By the way, the Daily Report is 25% off if you sign up today.
Yesterday, the market started off on a positive note and it continued to grind higher throughout the day. Stocks got a little overextended and we saw some profit taking towards the close. This move higher will be very contained and orderly. There are natural sellers who want to reduce risk into year-end so we won’t see a runaway rally.
Obama and Boehner met yesterday and rumor has it that a number of alternatives were tabled. This is a positive sign, but they are still miles apart. I still believe a mini deal will be forged so that middle-class Americans don’t have to deal with tax hikes. Republicans will give in to higher taxes on “rich” Americans and the president will get what he wants.
The real battle will get pushed back to January. We will bump up against the debt ceiling and Republicans won’t raise it until we have actual spending cuts and entitlement reform. This process will get ugly and if it drags on, our credit rating could be downgraded. I don’t see this as a good scenario for the market.
Stocks typically don’t do well after an incumbent is reelected. Europe’s economy is in recession, Japan has a fiscal cliff of its own and China’s stock market is near multi-year lows. Corporations will not invest during times of uncertainty and Q4 guidance has been cautious. Clearly, the debt ceiling is not the only issue we have to deal with in 2013.
Stocks will continue to grind higher on the notion that a deal will get done before the end of the year. Time is running out and the rug could get pulled out from under this market at any time if the talks deteriorate.
I like day trading strong stocks that have been beaten down. Bargain hunters are scooping up shares and we are seeing nice rotation. Because these stocks represent a good value, they don’t need market strength to push higher.
Look for stocks that have formed a base and have rallied through minor resistance on good volume. The market is not gapping higher each morning and you are not rewarded for overnight risk. Use hit-and-run strategy and take profits the same day.
The news is fairly light for the next few weeks and holiday trading will set in. The FOMC today won’t move the needle.
If by chance the SPY breaks below the 100-day moving average, I will buy puts. I will not add until I see follow-through selling and fear (rising VIX).
Day trade this rally and keep your overnight risk low.