You wake up at 4 and you learn a ton about the market, just a gigantic amount, and I would encourage you all to do so if you want to trade or invest well. Unless you are like me, you probably don't want to make it routine, but you will see how stocks are setting up and they are rather dramatic.
Monday was prototypical, because it shows you just how stupid people are to believe something that is thinly traded, but has a degree of authority and authenticity that it often determines the media coverage of the morning. One look at the Dow futures told you it was going to be a bad day, down more than 100 points.
I heard many: The delta strain of COVID, fear of earnings, a bunch of key downgrades, no lift from Virgin Galactic (SPCE) , even after a successful run by Sir Richard Branson. The repeated references to the rapid increase in cases - but not deaths - seemed the most likely culprit.
But all of these seemingly legitimate reasons obscured the truth, which is that the futures are absolutely worthless, just banish them from all thought, except for being ready to pounce, because these big companies do not march to the tune of the futures: They are in charge of their own destiny. The tug of the futures, which some regard as hallowed as gravity, gives you phenomenal prices you don't deserve.
Why is that possible? Because while the stocks are just pieces of paper, the people behind them are anything but.
I want to show you how juicy this can be: I am going to show you how to read the tape so you can profit, too. It starts with having a worldview: You know mine is positive, I think that the inflation is transitory - just like Fed Chief Powell, and earnings, for the most part should be very good. Employment is strong and the scattered earnings we have had in the last couple weeks have pretty much all been positive.
You may not share my worldview, which makes this exercise problematic. But if you do, get your net out, and let's go fishing.
First, this weekend my wife, Lisa, and I, paid $30 to watch an unbelievably fabulous movie, "Black Widow" with Scarlett Johansson. Candidly, I was dubious. I like Marvell Technologies (MRVL) more than Marvel. But Lisa talked me into it by saying we could have big Coke Zeroes (KO) , Hershey's (HSY) Kisses and ramen delivered right before the movie began. We watched it on our big screen TV in our living room on our coach and to say we loved it is a tremendous understatement. If it weren't for a centipede that somehow appeared on our wall behind us - one that Lisa got, because I was way too scared - it was about as perfect an evening as you could have and the accouterments, like the Coke Zeroes didn't cost $5 a piece.
To me this stock just screamed "buy," even before I heard that it made $80 million including $60 million at Disney+ (DIS) proving, definitively, that plus is a dynamite way to watch a new release. The stock opens at $177.37, down a tad, because of the moronic futures, and you got your chance.
I think people know by now that ever since we sat down with Stephen Squeri, CEO of American Express (AXP) , at my bar in Brooklyn, we have become convinced that the stock is a must own. It caught not one, but two target boosts, so I am jonesing for it. Sure enough the stock opens down two bucks, which is ridiculous, but totally in sync with the futures, and you have to just buy with both hands. You are money good almost immediately.
The banks. They have nastily pancaked. You have two of them in the Dow, JP Morgan (JPM) and Goldman Sachs (GS) . Now these are day trades, because there's no way you want to own these into the actual numbers - too much guess work and too much of a history of decline. Goldman opens down four; it quickly rallies to 10. Ring the register. JP Morgan gets banged down two bucks, your up six almost instantly. K'ching.
Now there are a couple of other obvious ones - a Chevron (CVX) upgrade worth a couple of bucks, a Nike (NKE) , with a short position reeling from the Chinese equanimity. I think you get my point, though, that the futures are pointless right now except to the point of opportunity.
This pattern's been with us for months now and each time it fools people. I am urging you not to be mystified and have the courage of conviction.
Why does this method work? Because of my world view, that's why. I always tell members of the Action Alerts PLUS club that it is vital that you have a six month worldview - about as far as I can see, akin to the 12 miles that you can see from the beach before it runs out at the horizon. If your worldview is neutral to negative you cannot use this method. You will end up kicking the stocks out, if they don't rally.
So let's go back to my worldview because as much as I am your coach and your teacher I need you to know what makes me bullish. First, I think that the loggerhead congress blunts a lot of the anti-business rhetoric coming from the White House. Not all of it. You had to hold your nose last week and buy the stock of the great rail Norfolk Southern to catch a quick ten points after the President crushed it with his direct mention of rail gouging. That's the first, I expect many more. I trust that the Republicans won't help pursue his pro-labor anti-capital.
Second, I think the Fed is going to be dead right in its analysis of the transitory nature of inflation. Already many commodities peaked two months ago. More and more there's been demand destruction. A Fed that is right is a fed that stays your friend. Third the amount of money coming in to this market isn't a sign of a top. It is a sign that bonds are making you no money and they can't at these prices. They caught many looking the wrong way, chiefly because of the ever so slowing business and more important foreign buying.
Finally, I believe earnings should be pretty good, maybe not as good as others, because the bottom line is hurt by inflation for many companies, but I believe we will get more number bumps and hold to buys that will keep the move going.
If you share my worldview and follow these futures-led moves throughout the morning before the bell, and you are ready with the stocks you need, you can trade or invest with the wind at you back and the current going your way, the best way to nab big game fish.