Morning Market Thoughts

Good morning. The futures are pointing to another lower open today after the S&P printed a bullish engulfing pattern yesterday. The S&P is trading in a pretty tight range, but support is holding around 2,575 and there is still an upside bias to the market. The macro influence on equities is tax “reform.” The dueling House and Senate bills are still being considered and conventional wisdom seems to be that one of them will actually pass. Conventional wisdom has a really bad track record of late, so I don’t put much stock in it. For the record, I have strong doubts that either bill will pass, nor will Congress come to any type of “compromise” that changes the dynamics of the tax laws. Oh, it might change a few things here and there to give everyone some talking points to sell constituents next year; but any giveaway in one area will be taken back in the next, and I doubt it will have much impact on individual taxes, or on the economy. But it will be a success for the swamp because one party will be able to declare “Yay! We did something for you!” while the other party will be able to declare “Yay! We kept you from getting screwed!”.

Because the market always discounts future events, I think it’s safe to say that the market isn’t expecting much. Frankly, I think any change will prove to be a non-event. Stocks haven’t been moving higher this year because everyone thinks they’re going to get a stocking filled with candy at Christmas. They’ve been moving higher because there’s nowhere else to go. So just stay the course and forget about the reality shows on the financial news channels. As previously noted, you’d be better served watching the Real Housewives of Orange County. It’s interesting to some folks, and it’s a better use of your time.

Yesterday morning I pointed to Roku (ROKU) as a high momentum stock that I’d be watching. The bulls pushed it up nearly 30% (it’s up 126% over the past 3 days). Traders in the forum were all over this stock, and it’s up even more pre-market. If it breaks above $47.50, I’ll be trading this again today. Happily, it’s impossible to short the stock because you can’t borrow any shares. Therefore, it’s impossible for you to do something dumb. Think about it. When you can’t get a borrow, you know that the stock is heavily shorted. And a heavily shorted stock is like a puddle of gasoline just waiting for a match. A match got dropped in that puddle a few days ago. Respect the short squeeze. It’s a fool’s errand to try to predict the top. So either stay away from the stock, or be long with a sharp eye on the chart, and an exit plan that includes a stop loss.

This morning, Buffalo Wild Wings (BWLD) is up 25% pre-market after a report in the Wall Street Journal that Roark Capital has made a bid to buy the company at $150/share. The stock is currently trading at $148.50. With the stock just $1.50 below the bidding price, the only reason you’d be buying this stock is because you believe that the bid is too low, and that a competing bid at a higher price is forthcoming. Other than that unlikely scenario, it’s just a shiny object.

Members: Remember that I’ll be hosting a training session tonight at 8 pm ET. (I will send out a short Strategy Session video prior to the training session.) Hope to see you there.


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