The market trend has remained to the north and one cannot wisely fight the trend however, one must also be wary of upcoming data that could sway the markets significantly. One thing we can expect is volatility but, the direction after the data is unknown right now. Unexpected data tends to move the markets significantly and currently, the markets have likely priced in a significant sized QE2, good earnings and a Republican victory. The markets have priced in what they expect but, what happens if things don’t go as planned?
Without beating around the bush, that is a lot of data that has to go according to what the market expects and odds are it will not all go as planned. Friday will start us off for the next two weeks of possibly game-changing data. We will have GDP reports in the morning and we will now have less important earnings going forward. A good GDP report is likely to start some whispers that QE will be small and vice versa. Next Tuesday is elections and Wednesday is likely when we will know if we receive QE and what size it will be. November 11th is the next G20 Summit and that is likely to tell us what to expect from this currency war going on. How low can the dollar go? If the dollar strengthens, will the markets collapse, pullback, or will other data keep the uptrend intact? These are important questions that will be tough to predict accurately. As many of you know, I predict less and react more therefore, I’m mostly in cash rather than holding significant long or short inventory. Data like this will create volatility and that is ideal for straddle options but, holding too much long or short inventory can prove painful.
I’m still a very big believer in Santarus (SNTS) and the chart strength moving towards a breakout. However, if the markets take a hit, SNTS will as well. The underlying accumulation in SNTS is strong but, we are very close to some data that could create weakness in the markets. Like many stocks, this could mean being long a good stock at the wrong time in a bad market environment. Regardless of my bullishness in SNTS, I will keep tight stops to protect my current profits and would rather sit in mostly cash while others try to predict the data. I believe we still have a great chance of the trend north to remain intact but, it is not something to wisely bet heavy on as we don’t have an edge. Without an edge, you might as well put the money in a slot machine, so to speak. Options would be a safer route to go as we can expect volatility at the very least. If you’re not familiar with options, now would be a good time to use play money and learn.
As always, do your own homework to see if you agree. Have a good night and I’ll see you in the morning. Good luck out there.
Mike
At the time of publication, Kudrna was long SNTS but positions may change at any time.
