Normally the beginning of earnings season is reliably bullish–but this market has been struggling for higher ground.
That tug-o-war has caused enough volatility to blast us out of a two SPX positions last week, but this week we have reset for some nice gains.
That said the market has been weak–but will it stay that way? To find out, and to uncover the highest probability trades this week let's take a good look at…
The Markets and How They Affect Us
The market has been in a downtrend since the beginning of March–and that's still in place…
The markets gapped lower at the open this morning on two high-profile earnings disappointments, but recovered most of those losses by the close–a positive sign for tomorrow.
Goldman Sachs and Johnson & Johnson knocked the Dow for a -173 point plunge intraday. Then tonight after the bell IBM reported a miss on revenue and shares fell from the $170 close to $160.90 in afterhours. That alone will be a 63-point drag on the Dow on tomorrow.
Plus as we talked about last week geo-political tensions are back in spades. There were reports this afternoon that the USS Ronald Regan and USS Nimitz carrier strike forces have been ordered to the Pacific to meet up with the USS Carl Vinson. The U.S. has not put three carrier strike forces in the same region since WWII.
The US is providing a strong suggestion that Kim Jong Un-Hinged pack up his toys and start behaving, but that's is not likely to happen. When you push a crazy person into a corner they tend to get crazier.
The other leader with small man syndrome sent Russian bombers to overfly Alaska today and they were escorted away by U.S. fighters. Putin sent bombers to Japan a couple days ago and it took 14 scrambled fighters to convince them to leave.
However until we get some actual explosions the markets will liable to mostly concentrate on earnings–but traders are betting cautiously on that front as well.
Volume was a little stronger today at 6.1 billion shares, but that is still light. It was way better than the small 5.3 billion shares on Monday's big rally. Traders are being cautious ahead of the funding battle and potential government shutdown starting this coming Monday.
The big cap indexes posted losses giving back about half their gains from Monday. The small cap indexes posted fractional gains but we should not read too much into that divergence. The big cap indexes are influenced by only a few stocks while the Russell 2000 has 2,000 stocks.
Today's broader gains on the RUT are a positive sign for tomorrow–but any pop higher may not last the week.
One strong gauge of market sentiment is money flowing into bonds (safety) versus stocks (more risk=greater return).
Today money continued pouring into bonds in a sign of continuing caution. The yield on the ten-year treasury keeps moving lower with a close at 2.179%–a five-month low. Stocks rarely rise when bond yields are falling sharply.
The bottom line is the sabre rattling continues with regular disturbing news releases, and there is an increasing number of headlines about a possible government shutdown next week. On the other hand a few high profile earnings beats can always bounce the market higher–the question is…
How do we make money on it?
For our aggressive trade we've got a call spread on an index with a bearish trend for a ten-day 20% profit.
And for our Roth trade we're selling two out-of-the-money call spreads for a potential 10-day 25% profit, and a seventeen day 20% gain.
We've got three trades looking good for this market–so let's get started…
Click here to gain access to today's picks.
Keep up the good work,
Peter