Yesterday was an ugly day.  Most of the day saw terrible market breadth, at one point it was about 6 to 1 negative. Many market players walked away disgusted as they had to sell or had stops triggered and I was one of them.  I fully expect us to reach a deal on this debt ceiling, but I don’t expect it to happen until nearly last minute.  That means we could see some very emotional swings taking us by surprise.  It is that concern which is going to keep me on the sidelines a bit more until this headline is past us.

Stops were triggered in PDL BioPharma (PDLI) and Akorn (AKRX).  I initiated a small tracking position in Pioneer Drilling (PDC), but am waiting to add until I feel more comfortable the markets will hold these levels.  Gastar Exploration (GST) is taking off this morning and up 20% as I write this after an already bullish move up over the past few weeks.  I have been trimming more into this move up and anxiously awaiting a pullback to add some back.  In a market as such, it becomes tough to not take profits when you have them because just one headline can wipe away all the green on the day.  That is exactly why I’m playing extra cautious until this headline is old news.  Even after the deal is done, it is unlikely to be completely old news though as we will continue to talk about it and details of the deal will become more public.

Traders are expecting a spike up into the deal being completed only to fall down after details become more public and we move to the next headline.  I believe this is a valid thesis to work with, so I will quickly add and take profits into a spike with the intent of looking to pick up an index short or two.  Instead of predicting, I will react though, so if the action tells me otherwise, do not be shocked if that strategy is tossed out the window.

Start building a shopping list and be ready for some better trading soon.

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As always, do your own homework to see if you agree.  Good luck out there.

Mike

At the time of publication, Kudrna was Long GST and PDC but positions may change at any time.