The stock market didn’t do much of anything yesterday.
The S&P 500 rallied a few points higher. Then it drifted a few points lower. The index tested the support of its 9-day exponential moving average (EMA). And, by the end of the day, it closed basically unchanged.
The bulls look at this sort of consolidating action and say, “See, the sellers don’t have any momentum. The trend is still strong. The S&P is still holding above its 9-day EMA.”
On the other hand, the bears say, “This action is just working off the short-term oversold conditions. The market is building energy for the next move that takes out support and pushes the market sharply lower.”
If you ask me, I’ll shrug my shoulders and tell you it’s a coin toss. It’s a 50/50 bet either way.
But there are a couple of market-moving events coming up that could provide an edge…
On Friday, we get the November jobs report number. That report could provide a catalyst to move the market one way or the other.
Then next Wednesday, we get the FOMC announcement on interest rates. That event could also create some volatility.
The typical pattern going into an FOMC announcement is for stocks to decline on the Friday and Monday before the announcement and then rally on Tuesday and Wednesday.
And the typical pattern after the monthly jobs report is for the market to reverse whatever happens the morning of the report. In other words, if stocks gap higher in response to the jobs number, then they tend to fall back down later in the day on Friday or Monday. If stocks gap lower immediately following the jobs report, then they tend to rally later on Friday or on Monday.
So, here’s how I plan to trade the market going into these events…
If the stock market gaps higher on Friday morning, then it’s going to set up a terrific short-selling opportunity. We’ll have the reversal pattern of the jobs report in play, and we’ll have the potential for the pre-FOMC meeting weakness. A gap higher on Friday gives traders a lower-risk setup for a short trade on the broad stock market.
If stocks gap lower in reaction to the jobs number, then I won’t do anything on Friday. I’ll count on the traditional pre-FOMC meeting weakness to carry into Monday. Then I’ll look for short-term oversold conditions to provide a solid long-side trade setup in anticipation of strength on Tuesday and Wednesday.
That’s my game plan for now. It’s neither bullish nor bearish. It’s reactionary, and it’s based on how the market has behaved previously in these circumstances.
There’s no guarantee that it works out well, of course. But, when the market direction is a coin toss, using previous patterns to define lower-risk/high-probability trade setups can provide just enough of an edge to help turn a profit.
Best regards and good trading,
P.S. One of the best things about my Delta Report strategy is that even in these “coin toss” conditions, we still find great contrarian opportunities with low risk and high upside.
But at the same time, the Delta Report isn’t a “trade of the week” service. We don’t make trades unless they meet our strict criteria for big, short-term wins. That’s why we’ve had such a successful year. And I think next year’s going to be even better.
To learn more about a subscription to the Delta Report, click here.
In today’s mailbag, Delta Report readers write in about this week’s portfolio action…
Hanging in there with GG, pending your word. Gold is up today. Namaste!
– Douglass G.
I have held a long put position in COF (2019 expiration) precisely on the same long-term thesis that you have. Unfortunately, I am obviously going to re-learn the concept of patience as that position has been persistently underwater since I opened it. However, I still believe that it will pay off sometime prior to expiration and probably early next year so I think it makes sense to hang on to it in my long-term account.
However, in my trading account, it was very easy to believe in your short-term COF trade because of my familiarity with the name. When I first got the chance to read it and check the price, the puts were at $3.20 so I entered a limit order at $2.95 and it filled within an hour. And an hour after that, the floor fell out and I am, as of this morning, looking at about a 20% gain as the equity sits at $93.91 at yesterday’s close and the puts had a high 3 handle.
If this trade turns out like I think it will, I will make back the amount I am underwater on the longer-dated puts. Pretty cool stuff!
– Paul W.
And subscribers give their thoughts on a relatively slow week of Delta Report trades…
Just a quick note of thanks. I’m still relatively new at trading and am a real fan of your work. I’ve been taking small steps as I learn the ropes and have profited on every one of the trades you recommended since I subscribed.
I REALLY appreciate that you don’t just make trade suggestions for the hell of it, or because “it’s the scheduled time to make a recommendation” and that you thoroughly and clearly explain your reasoning for a trade and for NOT suggesting a trade. Thanks again. Cheers.
– Gregory S.
As a new subscriber, I was expecting to have a trade(s) from Delta Report this week. Alas, the recommendation is to do nothing.
As a seasoned investor, I appreciate this stance more than the urge to employ a weak trade just to have one, rather than waiting for best trades to re-occur. Better to be unwinding profitable trades and waiting. Thanks Jeff.
– Kerry P.
I heard once that sometimes no trade is a great trade. Love your insights! P.S. Thanks for the help in resolving my mobile app issue. Your staff’s response was quick and helpful.
– David W.
Just wanted to thank Jeff for following his professional judgment and not recommending trades just to please some of his subscribers who aren’t happy unless they are trading every day.
– Randy W.
This is a comment due to your most recent comment of hating to not have a recommendation every week. I think one of the hardest thing to do as a trader is to be patient, especially when our trade setups cannot be found in the market.
Overtrading causes us to lose money. I just want to let you know that I am so thankful that your business knows how to be patient and not recommend a trade for the sake of recommending a trade each week. You only recommend trades with excellent setups. Keep up the great work!
– Judith K.