"The most important decision you will ever make is to be in a good mood."
Tax reform optimism continues to drive the market higher, but market players must wonder if this is a setup for a "sell the news" reaction into the end of the year.
Bitcoin and blockchain-related names continue to trade in a frenzy. Longfin Corp. (LFIN) , which exploded higher on Friday, is trading up nearly 90% in the premarket at this writing. I have a number of plays in this group that I plan on trading aggressively this week.
Oil is up and the FAANG names are trading broadly higher in the early going. Biotechnology has some negative analyst coverage and we'll need to watch that sector, which has been struggling lately.
We have a very interesting mix of conditions this week. The indices are overbought technically, but momentum is strong and underlying support is holding well. There is a classic "sell the news" setup on tax reform as it has been so highly anticipated for so long. It looks like it is a near-certainty to pass at some point this week, but the market keeps celebrating every positive development.
"Sell the news" has not worked well in this market, but it is important to keep in mind that trading conditions into the end of the year are different. There is more movement due to subjective reasons such as tax planning and positioning for the new year. Also, there is almost always a day or two of aggressive selling as some market players decide to raise cash before the end of the year. Some folks like the idea of starting the new year with a high level of cash, and that leads to a bout of selling.
Last year the market finished on a very downbeat note with three days of selling, so while seasonality is positive until the end of the year, the risk of increased volatility is quite high.
Another dynamic that is at play is the blockchain/cryptocurrency frenzy. Despite the many "experts" who are predicting disaster for this so-called bubble, the frenzy is not coming to an end soon. As noted above, there are some huge moves again this morning, and I'm watching for that to continue all week. This is a week that is already supportive of more speculative trading and these stocks are the perfect vehicle. There is very high reward as well as very high risk. If you are going to play, make sure you stay very disciplined and don't trade too big.
What we have this week is a battle among an overbought market, a potential "sell the news" catalyst, positive seasonality, strong momentum and a high level of interest in very speculative names. It makes a fun trading environment but the important thing is to stay highly reactive and don't be afraid to cut losses or take profits.
Twitter Inc. (TWTR) is one name on my radar this week as it is named a top pick for 2018 by analysts. Also, Bloomberg is launching a Twitter-based news service that looks to be a significant new use of that platform. Twitter is currently my largest position.
This is a week for aggressive trading. Be mentally prepared to move quickly.