The “Hopium” Induced Rally

The stock market has officially become more exciting than the National Football League!

You know me, I can’t wait for the weekend matchups and especially when the Steelers are involved.  Of course, this season has been a bit disappointing for me as my beloved Steelers have one win under their belt and that was to the Cincinnati Bengals!?!

Outside of my team’s lack of production, the NFL games are truly getting a little slow and tiring to watch.  Sure, there are a few moments of excitement when you realize that you are yelling at the television and flailing your arms around, but…

… This week, someone in my office had to tell me to settle down as I was creating a ruckus.  There was no game on, it was early in the afternoon yesterday, I was yelling at the flashing screen of quotes as if they were a referee that had made an egregiously wrong call that tilted the game on its head.  Seriously!

Last night as I sat and went through my notes it all clicked back into place for me.

  1. This market is moving higher on a big dose of “hopium”, period.
  2. The technicals remain a strong headwind as we head into earnings season, and following the technicals won’t steer us in the wrong direction.
  3. The power of the “headline” is starting to wane, this means the market will start trading on facts as we head into the earnings season.

We just spent the week closing out a large number of profitable positions.  You should be proud.  Hell, I should be proud!  Instead, I’m spending my time pouring through the data to make sure we move correctly over the next few weeks.

A few of the questions that I asked myself last night…

Q: Could this market rip 10% higher?

A: Yes, but it will take two weeks of earnings reports that impress like a student walking in with straight A’s on their report card.

Q: Will the Fed lower rates on October 30?

A: Yup, but the market has already priced that into current valuations which means they will have to administer another dose of “hopium” in order to see stocks move higher.

Q: What am I missing?

A: This one got me thinking about my Third Commandment of Trading… ”Don’t fight the tape” – “Don’t pick up pennies in front of a steamroller.” Always know your breaking point. Losses are simply tuition for a smart trader.

So, what are you supposed to take from that?  The last two days moves have been setting some traders up to pick-up some pennies only to lose a few fingers in the process.  We may have a couple of losses over the next two weeks, but being nimble and adaptive to the market’s changing winds will allow us to profit from the edge that our model gives us.

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