The main theme of the week is the same as of late, and that is trading individual plays around a range-bound market.
I feel like I have written this before and went back to the “archives” to see what I wrote the last time the jobs # came out too see where we were on the market indices at the time and I would’ve attached the last article but there are too may obsolete quotes and data but the main theme is the same and that is trading individual plays around a range-bound market.
There are some differences but the main one this time is that despite the S&P ($SPX) trading near all- time highs, the Russell ($IWM) and the Transports ($IYT) are well off year highs and in some cases down over 5% of y/h’s.
Over the past week, with a slew of earnings that came out, traders played the normal plays (more later) as economists etc. waited for the Friday jobs # to most likely determine the direction of rates in the near-term leaving many to question if the Fed will raise rates sooner than later and as always, “we will leave that to the pros.” I will say that the good news is that we aren’t breaking down but the bad news is that we aren’t breaking out.
Overseas markets continue to give the US markets some early S&P future direction with the Shanghai Composite having wild swings, the Elections in Europe which took the FTSE up over 2% on Friday and Greece now down 3% early Monday morning so now more than ever our traders watch to see how the European markets close in the late am to get a better indication of overseas sentiment and how they set up for the US close and the open of trading the next day. We aren’t complaining and applaud the volatility.
I would like to make a point which will make more sense in my conclusion. At Tradeview Markets, our traders have the option of course but rarely trade any Index Futures (notably S&P/Nasdaq) and most commonly the SPY’s (ETF) and that’s for many reason but mostly because of a story that I tell from time to time, and not to be dramatic, changed the way I thought about trading market indices from that point on. At my previous firm, when the industry downsizing was in full force, we consolidated offices/traders etc so that only the best at firm remained. I sat on a desk, next to, a trader that literally and consistently had the highest win % in the firm…and needless to say, I did NOT.
All this trader did, named Steve, was look and stare at his Bloomberg terminal for ANY material news that hit the wires. That was his gig and his style and I respected that. Not the sexiest way or most exciting way to trade but we were friends and I knew his financials as to what he made in his career trading so I had no reason to question so as usual I put my ego aside and tried to learn.
So one day, I forget what happened but it was rare (think a rate CUT actually) and the market moved violently in one direction, like a 40 handle S&P move. Stocks are gapping up with wide indications and I was going NUTS, typing in orders but essentially throwing darts to see if “anything stuck” and would think later after my fills hit. Win or lose just a great trading opportunity. Steve is to my right and still staring at the Bloomberg terminal in usual position so I look over and say, “Steve, throw something on man…short 100 SPY to get in game.” So he looked at me and said, ‘Mikey, I don’t gamble’. OK….
After the close, we were talking and was actually teasing Steve about the discipline. This is where it made sense and I will not cheapen the lesson but have to paraphrase. Steve said tha if the futures run up 40 handles and he shorts an index, say 100 SPY, he believes that it is a GAMBLE, a 50/50 proposition, despite where the futures have come from. Sure the probabilities are greater for a pullback the higher “they” go and like anything in this profession, it’s all about timing. But he compared it to flipping a coin. You watch someone flip a coin 10X in a row and it comes up tails all 10x, much like a massive futures rally. If you “bet” or put on a trade thinking that heads is due to come up, you are wrong, it’s still a 50/50 bet if you decide to take that wager, so it’s a gamble and therefore, have no edge.
The point here is suppose AAPL, which was weak on the day, acts poorly into a futures move…short AAPL. You have a gauge and something to go by that reflects how something acts and not just a probability of picking a direction of the market(s). Just an opinion and from where I come from, most traders, and SHARP one, lose money on market direction anyway. You can’t time the market ….
Where does this leave us at the beginning of trading for the week of May 11?
No opinion….if you are reading this article, chances you are well versed and hopefully in tune and focused on the main topics but one predominate one is watching the SPX thru 2120.
In the meantime, the market is giving GREAT opportunities in individual names. There have been dozens of stocks with 5-10% ranges that have had material news, good price action and volume.
Earning stocks in play and looking for resumption trades: CYBR MNST PCLN BABA TSLA GMCR WFM NUS NFLX TWTR SAVE LNKD
Stocks active with great range and volume: HLF LL PBTI GEVO TASR ICLD SUNE MSFT
Stocks prone to news: ALTR CRM YELP FXI (etf)