The Jump on the Week

Over the last six weeks, the S&P 500 has gained nearly 10%.

Back then it was a news-driven market—a time when itchy twitter fingers and fake news mattered.

And while the media circus will only intensify as we approach the 2020 election, the market has currently muted the news…

Markets continue their relentless push higher on anemic trading volume—last week marked the sixth consecutive that the SPY and QQQ closed in the green.  

And while one could make a strong argument that the SPY doesn’t deserve to be up here, and that the fundamentals don’t support these levels—the market remains judge, jury, and – if you’re on the wrong side of the trade – executioner.

So how am I tippy toeing around this mess?

By being stock specific, sticking to my money pattern, and using options to exploit the opportunity.

You can still find trades if you know where to look. Even with a slow market, my Bullseye Trade in Nike (NKE) pulled out a 72% winner on the week.

Not to mention a massive winner in Total Alpha with my option spread.

This week could mark a turn in equities. And I’ve got you covered in the Jump. I break down the economic and corporate schedule, as well as discuss what upcoming micro and macro factors could influence stocks and the global markets.

Market Internals

A lot of traders think that the light volume makes a market bullish. That’s factually untrue. Take Thanksgiving week for example.

We all know volume lightens up as we approach the holiday. Here’s a couple of stats for you in the last 9 years if you bought the SPY on the days prior and sold at the close of the Wednesday before Thanksgiving.

  • Friday – Win 66.67% of the time, but lose 0.29%
  • Monday- Win 55.56% of the time, but lose 0.32%
  • Tuesday – Win 77.8% of the time, and make 0.04%
  • Same day Wednesday – Win 55.56% of the time, but lose 0.02%

Light volume just creates more volatility. But, it does mean big money is less likely to make important decisions.

Budgets and China

Impeachment remains the focus of nearly every news station. Yet, there’s important work happening behind the scenes.

Nancy Pelosi and Steve Mnuchin get closer to a budget deal to fund the government. The border wall and the Department of Homeland Security (DHS) remain the sticking points. Trump still wants $5 billion that Democrats won’t offer.

In all likelihood, we’ll see a shortened version of last year without a shutdown. The bills won’t fund the wall, and Trump will pull money from other areas he has discretion over. Still, he’s always a wild card. The deadline for passage is Nov 21st.

And speaking of deadlines…negotiators hit a snag once again between China and the U.S. Trump set December 15th as the deadline for another 15% increase on a range of products. That would put it square in the Christmas shopping season.

Chinese negotiators want additional tariffs removed and continue to balk at being tied to a specific amount of agricultural purchases. The U.S. continues to hammer them over intellectual property transfers among other issues.

Markets took all developments in stride this past week. No one trusts the reports anymore to make trading decisions. Until actual statements of what is or isn’t happening come out, they look at everything else as rhetoric.

Little Data Coming Out

Data starts to come in slower as we reach the holiday season.

Housing starts and permits on Tuesday provide data on a key sector that remains strong. We also get existing home sales on Thursday morning.

One of the standouts for the economy remains home construction. They create more jobs through direct and indirect means than most other sectors.

A decade past the financial crisis, we still see strong demand in the home market. Low rates continue to make purchasing affordable. But, if bonds continue their selloff, that could drive rates higher and crimp home demand.

Friday will give us the manufacturing PMI. I don’t expect we’ll get a hot number, but you never know. Core CPI came in above 2% for the consumer already. If inflation starts to rear its head, that would put the Fed in a real tough spot.

But keep an eye out for energy

Tuesday afternoon, we get the American Petroleum Institute’s weekly data along with Wednesday’s Department of Energy report. With the weekly natural gas inventory on Thursday, we’ll see if energy stockpiles show any signs of a drawdown.

Crude remains reasonably bullish, which would certainly help out some poorly performing companies. Energy companies got destroyed on the earnings front.

If crude and natural gas start to turn bullish, that would be a huge windfall for the energy sector (XLE) and exploration companies (XOP).

Market signals to watch

I’m keeping a close eye on the VIX. It finished last week near $12, which is insanely cheap.

VIX weekly chart

Pure statistics say we should see a bounce in the VIX, which should lead to a market pull back. I like to play the VIX through options on the UVXY, which was actually my Bullseye Trade of the week.

I’ve been trading these positions with long calls on certain stocks in my Total Alpha portfolio. No one knows the exact timing for the turn. So I create low-cost strategies that offer huge potential payouts.

In fact, it wasn’t that long ago that I showed traders how I work these markets live. You can catch a replay of the workshop through the link below.

Click here to watch replay

Next Week’s Calendar

Tuesday, Nov 12th

  • 8:30 AM EST – Housing starts & building permits MOM for Oct – Housing should remain strong
  • 4:30 PM EST –  API Weekly Inventory Data – Will we get a drawdown?
  • Major earnings: Home Depot (HD), Kohls (KSS), TJ Maxx (TJX) Urban Outfitters (URBN)

Wednesday, Nov 13th

  • 10:30 AM EST –Weekly DOE Inventory Data
  • 2:00 PM EST – Fed minutes – How much dissent was there at the last meeting
  • Major earnings: Lowes (LOW), Target (TGT)

Thursday, Nov 14th

  • 8:30 AM EST – Jobless claims – Don’t expect any changes
  • 10:00 AM EST– Existing Home Sales MoM for Oct – Will demand remain strong?
  • 10:30 AM EST – Weekly EIA Natural Gas Inventories – Is winter increasing demand?
  • Major Earnings – Macy’s (M), Nordstrom’s (JWN)

Friday, Nov 15th

  • 9:45 AM EST – Manufacturing PMI – Is there inflation for the manufacturers?
  • Major Earnings: Footlocker (FL), Smuckers (SJM)

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