In spite of a slight pullback today the bull is still kicking–but fortunately a lot more placidly than a couple of weeks ago.
And that's good news for our out-of-the-money spread trades. Our SPX put spread expired worthless Friday almost completely offsetting an earlier close, and our AMZN put spread expired for a welcome seven-day 28% gain. Plus we've got several open positions looking good for this Friday as well.
So to keep the ball rolling let's take a look at…
The Markets and How They Affect Us
In spite of a minor pullback today the SPX has broken all technical resistance…
As you can see the SPX popped above its previous highs today–but just barely. And by the close it had pulled well back. The cause is poltical and geo-political risk that just doesn't seem to be going away.
Today's pullback from the intial highs was caused by the North Korean ambassador to the UK. In an interview he said "We are ready to turn into ashes any available strategic assets of the US." He also said North Korea was prepared for their sixth nuclear test as soon as Kim Jong Un gave the order.
That could actually be good news in one way. China has warned Korea against any further nuclear testing or the Chinese have threatened to impose sanctions. So if Korea is actually stupid enough–or crazy enough–to do a 6th test they will be inviting the wrath of what was recently their biggest ally–and that would take tremendous pressure off the US.
Then after the close, President Trump fired FBI Director James Comey on the recommendation of Attorney General Jeff Sessions and Deputy Attorney General Rod Rosenstein. In Trump's letter to Comey he said it was time to find somebody that could restore public trust in the agency. Shortly thereafter Senate Democratic leader Chuck Schumer called for a special prosecutor in the investigation between Trump's campaign and Russia.
Schumer said the pattern of dismissals of people critical of the Trump administration was troubling. Acting Attorney General Sally Yates was terminated and former super star U.S. attorney Preet Bharara was also dismissed. According to Schumer, the Comey termination suggests the administration is trying to cripple the Russian investigation. S&P futures crashed -5 points almost immediately after the two headlines so tomorrow's open should be interesting.
Aside from any news risk earnings have been better than expected which is a big positive–but they are winding down. After this week 454 of the 500 SP-500 companies will have reported and there will be little for the markets to grab onto to propel stocks higher. That's why any negative news from this point on could have an outsized effect on direction as there will be little to counteract it.
Plus the Chinese economy seems to be weakening. Yesterday's import/export data showed Chinese steel exports were 14% lower on-the-month in April and down 29% year-over-year. That metric once again dragged down steel and base metals’ prices, both copper and iron ore hit new relative lows.
The good news is the Nasdaq and the FAANG stocks are still relatively strong, but they can't pull the whole market up by themselves. Fortunately Nvidia (NVDA) blew the cover off the ball tonight announcing earnings of 79 cents that rose +126% and easily beat estimates for 66 cents. Revenue of $1.94 billion rose 48% and even beat optimistic analyst estimates for $1.91 billion. In one fell swoop all the recent critics of Nvidia were left standing on the sidelines while the stock spiked $15 in the after hours market after the release.
However that report will likely be offset by Priceline's big plunge in the afterhours market. The company reported good numbers but apparently not good enough.
The point is there are risks out there that will not be offset by a positive earning surprises after this week. The big flurry of reports at the end of the week are all in retail and we know that's been a weak sector.
So even though the market has been performing well you have to wonder what will drive it higher over the next several weeks. My guess is this is a good time for all those successful traders to take profits–the question is…
How do we make money on it?
For our aggressive trade we've got a put spread on a stock that was unnessesarily punished after earnings and now it's bouncing back–and we'll be taking advantage of it for a quick 10-day 27% profit.
And for our Roth trade we're selling an out-of-the-money call spread for a potential 9-day 19% gain.
We've got two trades looking good for this market–so let's get started…
Keep up the good work,