$4 Trillion Reasons to Buy Stocks Now

Look at how quickly the news is changing right now.

Last week, it felt like investors were ready to throw in the towel as the averages quickly retreated from their highs.

Then, buyers stepped in with a vengeance on Monday morning, vaulting stocks off their lows in what turned out to be a swing of more than 1,000 points in the Dow.

I can’t stress enough how important it is not to get swept up in these daily swings.

As I’ve said over and over again since the market started to perk up off its March lows, you have to follow the money. The political backdrop is very clear right now: The Fed is going to do anything and everything to keep this market afloat.

I’m sure you can guess what happened next…

Following Monday’s rebound, we learned that the Fed is now expanding its operations with its announcement to buy individual corporate bonds, in addition to the exchange-traded funds it already is purchasing. Like it or not, the Fed is on a buying spree! Don’t fight it! This money flow is unprecedented … and it’s going to continue.

Don’t get me wrong, we’ll always see some unwinding and profit taking when the market gets a little frothy. That gives us a chance to take a step back and reevaluate the risk-reward for new trades.

As I noted in a TV interview earlier this week, all we had to do was watch to see if the S&P 500 would hold near 3,000 and potentially post a fresh bounce. So far, that’s exactly what we’re seeing play out in the markets this week…

Knuckman interview

Remember, I’m viewing the market on a weekly basis. And I trade options so I can ride out the ups and downs and have some staying power when things get a little rocky.

With everyone so focused on the day-to-day action, I’m guessing that many investors failed to note that the S&P actually made new highs last week. We’ve continued to stairstep higher … an incredibly positive situation for the markets.

Don’t get lost in the narrative! There’s still plenty of opportunity to book gains in this market!

Keep it In the Money,

Alan Knuckman

Alan Knuckman
Editor, In-The-Money

Chart of the Day: Headline risk is high

Greg GuenthnerOn Monday, we showed you how the S&P 500 had quickly retreated back near the 3,000 mark, which also happened to be right at its flat 200-day moving average.

Most traders were freaking out as some volatility crept back into the picture. And I noted that we should expect some indecision here as the bears and bulls continue to wrestle for control. As of Tuesday afternoon, we’re already experiencing some serious whipsaws.

On Monday, we opened deep in the red, only to watch stocks catch a bid and power higher to close well in the green. Yesterday, the averages gapped up big thanks to the Fed news and a slew of strong economic data, only to fade from the highs as some negative news hit the tape related to Beijing locking down due to new coronavirus infections.

Just look at some of these huge gaps we’ve experienced so far this month on the S&P:

spx chart

It’s important to keep our wits about us as some volatility returns to the picture. Headline risk will probably remain elevated for the foreseeable future. Strap in … and stick to your trading plan!

Trading Tip of the Day

Pay attention to price, not the news.

I feel like a broken record these days talking so much about why price action will always be more important than random financial media headlines. But it’s important to remember that market action is shaping the news right now. The tail is wagging the dog!

When stocks are powering higher, coronavirus concerns have less of an impact. But when the market hits a snag, CNBC is ready with their doom-and-gloom headlines.

If you turned on financial TV and tried to trade the urgent market headlines, you’d end up selling the dips and buying the rips … a terrible combination.

You don’t have to cancel your cable or move to the middle of the woods where you can’t get high speed internet. Just keep in mind everyone’s priorities. Remember, the media is all about ratings, not helping you gain an edge in your trading!

— Greg Guenthner

You May Also Be Interested In:

Alan Knuckman

Alan hails from the home of options trading in Chicago, where he began working as a clerk on the floor of the Chicago Board of Trade (CBOT). Beginning with his days on the floor, Alan’s worked with all aspects of the options markets for the past 25+ years.

Transitioning from a clerk to a floor...

View More By Alan Knuckman