When you see a stock either gap or make a big move in a certain direction--and then flatten out--it doesn't mean the move is over by a long shot. In fact usually the stock is just resting up--waiting for the next jump. So here's the biggest key--always trade in the direction of the gap.
Here is a great example--on September 28th M&T Bank (MTB) was featured as the "short of the day" because it had gapped lower followed by a long red candle lower. Subscribers could have purchased the October $80.00 puts for just $.70--but as you can see the stock was flat for several days. But then yesterday the stock shot lower again launching those .70 cent puts to a whopping $4.20 turning a modest $700 into $4200--that's a stunning 500% profit in just 8 days!
This is the power of gap trading--this short came during a major market breakout to new highs and it demonstrates the incredible effectiveness of trading relative strength and weakness--exactly what the trades inside The Daily Report are based on. A new bullish trade and bearish trade is published inside the Options Success website every day and then a Live Update table shows what is really performing--making your trade selection easy. To take advantage of these kind of set-ups and get a Trading Package to put it all together click this link now.
Market Commentary - The market has broken out above major resistance at SPY 115 and it has been able to hold that level for two days. If it can tread water and get past tomorrow’s Unemployment Report, it will rally to the highs of the year in the next few weeks.
The economic news has been improving. Chicago PMI, ISM manufacturing, China’s PMI and ISM services all came in better than expected. This morning, initial jobless claims dropped 11,000 to a seasonally adjusted 445,000. That marks the fourth week of steady improvement. Retailers have been reporting strong numbers and 80% have posted sales gains. On average, retail sales rose 2.8% in September and that topped analysts’ estimates.
Tomorrow’s Unemployment Report is expected to show flat job growth. Private sector gains are projected to offset public sector job losses. If this actually transpires, the market will rally off of the number. Yesterday, ADP reported that the private sector lost 39,000 jobs when consensus estimates forecasted 18,000 new jobs. The market shrugged this news off. ADP has been lower than the government’s estimates for three straight months. If tomorrow’s Unemployment Report comes in better than -50,000 there is an excellent chance the market will move higher.
Initial jobless claims have been improving and the market will latch onto that silver lining. Economic numbers that would normally “disappoint” have been taken in stride. Asset Managers are anxious to buy stocks ahead of earnings season and the November elections. They have been waiting for a pullback but they never got one--now that the market has broken out above major resistance, they are scrambling to get long. No one wants to miss a year-end rally.
Earnings season officially kicked off this afternoon when Alcoa posted its numbers. Even though profits were down the company's outlook was good--and the stock is rising in the afterhours market. Basic metals have been improving and with Alcoa trading near the low end of its range the stock has room to run.
Banks don’t start announcing until later next week. This sector could post weak numbers, but that is already factored into the market. IPOs have been light, trading volumes are extremely low and financial reform will soon bite into profits. Semiconductors have lagged the market and they could be the catalyst for the next leg of this rally. The big releases will start the week of October 18th.
The economic and earnings news is light next week and that favors the bulls. The momentum is strong and if the market can survive tomorrow’s Unemployment Report, it has nothing standing in its way. The next two weeks should be bullish and so take profits on call positions as we approach the highs of the year. Most of the good news will already be “baked in” by the time November election results are posted.
China’s growth is intact and credit concerns in Europe have temporarily subsided. These are two potential spoilers for this rally but they shouldn't come into play for the remainder of this year. Stocks are cheap relative to bonds and money will flow from fixed income into equities. Any decline should be swift and shallow presenting a buying opportunity.
In spite of the market's bullishness there are long-term issues that make it difficult to be overly optimistic. As 2011 rolls around, unemployment, structural deficits and higher taxes will weigh on the market. For now, if the SPY is above 115 so stay long. To find out what is performing right now--and what is likely to--get inside the Daily Report by clicking right here: http://www.cashflowheaven.com/os.
Trade Well,
Pete
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