Stimulus Bill Uncertainty Drives Monday’s Market Narrative
We are now two weeks from the Presidential Election and now awaiting news on a new stimulus deal. Monday’s session does count as a day of distribution with the NASDAQ leading the charge. It was nice to see Small Caps not lead the market lower and show some outperformance. Earnings season continues to move along. It is important to be aware of when your stocks report and when potential targets report. Risk management will always be top of mind and if you are not controlling risk you are asking for trouble. The future is always uncertain. No one can predict or see the future. What we do is to find trends and apply a risk management process to maximize our ability to profit from the stock market. Those who claim to know how the market will react are ones you need to avoid. We live in a crazy world, but there is no excuse getting caught up in it ruining your ability to profit from price trends.
Whether you like politics or not it will be nice to have this election settled and we can move forward. The stock market does not like uncertainty and with an election during a pandemic has created a unique situation. The Federal Reserve has no doubt helped keep this stock market afloat. When you have a floor set by a buyer with an unlimited capacity to buy stocks it is no wonder the market finds a floor. This won’t always be the case. For now, we have seen the Federal Reserve flex its “buyer of last resort” mandate come to fruition. Do not fight the fed and do not fight large price trends. April was a great opportunity for those willing to block out the noise and go with price action. No need to overcomplicate this game. There is nothing new.
Over the next few weeks, the common thread amongst pundits will be an expectation volatility will climb. Given the election and earnings season it is not a stretch to think an expectation of future volatility is out of the question. The VIX sits just below the 30 level indicating option traders are certainly expecting some level of volatility. It is a far cry from a year ago when volatility was hanging around 10-15 level. Who would have guessed we would have a pandemic a year ago? The future is unknown and while pundits in the financial news media would love to tell you they know it’s a fool’s game to believe them.
We hope you have a great week of trading. Keep a level head and work your risk management process.
