Are You Ready for All-Time Highs?

Stocks continue to creep higher as we close out another busy earnings week. So I’ll keep pounding the table as the averages approach some key levels…

All-time highs are in sight for the S&P 500 as the broad market barometer consolidates. It’s now just about 3.5% from its all-time highs set just five months ago.

Yes, we’ve been through a lot this year — and who knows what the second half of 2020 has in store for us as the world continues to battle a relentless pandemic. But if you’re following price, you know that the S&P break above 3,200 is holding strong. That’s a huge win for the bulls. We’re now targeting 3,350 in the short-term — a level that will put the S&P on pace to fill the February gap, setting up right below the all-time highs.

Once again, this bull is running until proven otherwise.

As I’ve said over and over again since the market started to jump 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. To step in front of this unprecedented support has been an absolute disaster for anyone trying to short the market.

I think it’s also important to address some of the sporadic rotation we’re seeing out of the tech trade this week. It’s true — the Nasdaq has encountered some selling. Nothing sustained for more than a day or so, but it’s happening. I’ll be watching the follow-through closely, but it’s not the end of the word. It makes sense for traders to take some of the money off the table here on these high-flying tech trades and look for other sectors to step up.

That being said, I’d like to see the Nasdaq maintain its momentum. It remains a powerful force that continues to lead the market off its pandemic lows.

Keep it In the Money,

Alan Knuckman

Alan Knuckman
Editor, In-The-Money

Chart of the Day: Bull markets are built on rotation

Greg Guenthner
Once again, we saw the Nasdaq underperform the S&P and Dow yesterday. A midday swoon slapped the tech-heavy index lower by more than 1.3% while the other averages kept their cool. Some FAANG names such as Microsoft, Google, Apple, and Amazon had all dropped more than 2% by early afternoon.

While we’ve yet to see any major breakdowns in tech, we are starting to see the industrials play a little catch-up. In fact, the Dow is actually beating the Nasdaq over the past ten trading days, clocking a gain of more than 4.6%, compared the Nasdaq’s gain of just above half a percent:

INDU

These abrupt rotations can be brutal if you aren’t paying attention. But if you know where the money is flowing, there’s a good chance you can avoid some of the short-term pain and continue to book profits along the way. As we noted last week, it’s crucial to learn how to take profits on the big rips higher. Remember, 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.

Trading Tip of the Day

Every earnings season, I get the same question from traders: The earnings were strong! My company beat expectations! But shares are down – what happened?!?

Yes, it’s that time of year again. Earnings reports are dominating the financial news these days as countless speculators attempt to play the numbers. But every novice trader eventually learns that beating earnings-per-share estimates by a penny or two is not a guarantee that the stock will soar.

You must remember that the market is forward looking. But earnings are simply a snapshot of past performance from the prior three months. When you bet on a stock, you’re betting on its future potential. You’re effectively making a prediction as to how the company will perform in the months and years ahead — not last quarter.

That’s not to say that investors don’t care if a company is exceeding expectations. They do! The market is just much more interested in figuring out if good times will continue.

— Greg Guenthner

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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...

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