Morning Market Thoughts

Just a quick note this morning about where I am looking.

While there is a lot going on today, my attention will be primarily on Amazon ($AMZN), Boeing ($BA) and Baidu ($BIDU).

Boeing is up so much that it looks like a blowoff top. So I’ll be watching for evidence of buying exhaustion. The stock opened above $238.25 yesterday after a second gap. Boeing has ramped 75% in 9 months in a series of bases. So the post-earnings gap can’t be interpreted as a “breakaway gap”. I think it’s an exhaustion gap and leaves the stock vulnerable to short sellers. It’s always a bad idea to jump on top of a missile after it is fired with the plan of riding it down after it peaks. That never worked for Wile. E. Coyote, and it’s not a viable trading strategy. But after two successive days of massive volume and closes near the top of the range, it’s only a matter of time where the buying is exhausted and the stock falls. If the price action shows signs of that, I’ll want to short it, with a buy stop just above $242.68 (yesterday’s intraday high).

Amazon is down this morning (as everyone knows), $1,000 would be a logical line in the sand by the bulls, and is currently where the 30-day moving average of the VWAP (volume weighted average price) is located. So any oversold rebound (gap and reverse) is likely to occur above that area. Selling out-of-the-money puts on this stock should work…as long as we see a rebound. Like shorting a rocket ship prior to the peak, trying to catch a falling cinder block isn’t a great strategy either. Wait for it to hit the ground before picking it up.

Baidu should open up about 6% higher. That’s not an extreme gap, but it will put the stock at a level where it’s ran more than 22% since the June low. In light of this market environment, it seems like it may be a viable “gap and crap” trade.

The key to these types of trades is to wait for the stock to do what you think it’s going to do. Anticipation is not the trigger for the trade. Confirmation is the trigger.

–Dan

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