Morning Market Thoughts

Morning Market Thoughts

Market Update

Good morning. Well, yet another day where equities are bid up at the open. The helium balloon continues to float sideways. Earnings are going to come fast and furious this week — Apple (AAPL) today, facebook (FB) tomorrow, Amazon (AMZN) and Alphabet (GOOGL) on Thursday. So we’re pretty much a hostage until those numbers are published.

Also, Smith & Wesson (SWHC) and Ruger (RGR) are moving higher today. The patterns are extended and I just don’t see a great entry. I think that, because of the industry they are in (firearms), the stocks tend not to move in the typical patterns that many stocks carve out. They just seem to be dominated by the flow of headlines. Just last week I visited a local gun shop to get some gear, and spoke with one of the managers for quite a while. He said that, since San Bernardino, their business was just off the charts. He pointed to their large showroom. The place had pallets of goods all around the floor. Some of them completely empty, others less than half full. I asked him if the boom in business was due to the plethora of terrorist attacks. He acknowledged a little of that, but he said the biggest catalyst for folks buying firearms was the Second Amendment. Constant talk of gun control has prompted a large body of folks to purchase firearms before they are unable to do so. Given the current political climate, I sure don’t see the rhetoric changing anytime soon (and I am not sharing any opinion about that issue here. Just going over an investment thesis).

So I think these stocks are going to continue to have buying pressure beneath them, and they just might break out. Extended stocks can become even more extended when demand continues unabated. So just watch these stocks. They may surprise you.

Gold miners look like they’ve found trading bottoms, and NUGT rebounded off the 50-day moving average and is up 5% today. This is one volatile little demon, and I’d suggest putting a stop just beneath the 50-day moving average. The swings are so wild that it hasn’t really been practical to do as I recently suggested — just hold the stock no matter what…as long as the uptrend continues. The challenge is that this triple ETF can oscillate by more than 30% from bottom to top of channel. That’s such a big swing that holding it with the faith that the trend will hold can be nervewracking. The one solution to that challenge is to buy it right — buy at a good, low risk entry point. $127 is such an entry — low risk because it’s near established support of $115. That’s the current reading on the 50-day moving average. It’s easier to hold a stock when it’s rallying 30%. Much tougher to hold it when it’s falling 30%. So if this is the way the gold miners are going to trade, then we’ll need to adjust tactics. Buy low; sell high.

Ok, that’s all I got this morning.

See you in the forum.

–Dan