A Warning Ahead Of The Weekend
The stock market’s buoyant behavior is bizarre considering the dicey state of the US economy, the threat of war in the Middle-East, and an election campaign that has unsettled Americans as never before.
To take them one by one: 1) Some of the biggest US companies are about to report a sixth straight quarter of declining earnings, and GDP estimates have been revised downward to a barely-breathing 1.8%; 2) Obama’s feckless strategy in Syria has backed our most dangerous enemy, Vladimir Putin, into a corner (for an extremely downbeat assessment, click here); and, 3) Voters are about to elect a president who is either a loose cannon or a pathological liar. Whichever they choose, it can only make these way-too-interesting times even more interesting.
With respect to the stock market, we continue to recommend buying put options whenever shares are rallying, as they did on Thursday. The move was suspicious because even though the S&Ps bounced sharply from stage-managed lows early in the session (see inset), the rally failed to exceed the previous day’s high. This modest feat could conceivably be accomplished on Friday with just a small flurry of buying. However, we would not — repeat, not! — go home long over the weekend if stocks appear to be gathering strength at the closing bell. This is the kind of bull-trap deception that makes for memorable Mondays, and unless you are absolutely certain the world will stay calm over the weekend, you should avoid the temptation.
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