US Futures are pointing to a higher open. Headline of the morning shows SCHW intentions to buy AMTD for $26 billion in an all stock deal certainly helps. Expectations are not high for the week of Thanksgiving, but one never knows what is in store for stocks this week. Last week’s pause certainly cooled off any overbought conditions, but will it continue into this week? If we had a crystal ball, we would keep the information to ourselves. We will continue to work our risk management process as the future is unknown. There are certainly positives in this market it is whether you want to focus on winning stocks or laggards? This market is continuing to reward those who have a solid trading plan We will continue forge on and capitalize on what the market gives us.
Perhaps a nugget worth noting is the continued support the Fed is giving to the overnight market. As its balance sheet turns over the central bank must do something with its cash. Aiding the overnight market certainly helps the situation and continues to pump liquidity in the system. We saw what liquidity did after the financial crisis. Money finds its way into the stock market and it does not care about valuations. The S&P 500 trades 20.67 times trailing 12-month earnings (Bloomberg). This most certainly is above historical norms, but we have never had the Fed continuing to pump money into the US Economic system. Who knows where this market heads next but given the back drop and FOMC support it is likely higher.
Long-term what this liquidity will do is up for debate. Budget deficits and overall debt continue to climb. Yet, it hasn’t mattered. Most fiscally conservative pundits will tell you it will mean doom and we will see a valuation reset like we have never seen before. Perhaps this might be true at some point, but we are avoiding it for now. The Flash Crash and Fiscal Cliff proved to be nothing more than a blip on the radar. Most likely we will see more blips, but will they turn into a stock market crash? It is anyone’s best guess. Our job is to focus on price action not what may eventually happen in the future. Our risk management process will help keep us in the game just long enough to extract great returns. Stick with Big Wave Trading and we’ll help you through whatever the market throws at us.
We hope you have a great trading week!
