We mentioned at the beginning of the week the zombies are scheduled for recess next week and as much as the two sides don’t get along, neither wanted to miss their scheduled time “off”. The threat of working overtime and missing their vacations was perhaps much more greater than letting America default on its bills so they decided to get the ball rolling.
The dog-and-pony show started with Jack Lew telling the zombies the Treasury could not “prioritize” the debt and that by definition a default is a default. He urged the knuckleheads to get together to open back up the government and to raise the debt ceiling.
Wall Street opened significantly higher as word spread House Speaker, John Boehner, was going to be offering the President a temporary increase in the debt limit. He did and didn’t cry.
The zombies will be holding “negotiations” to end the government shutdown for the remainder of the day and possibly into tomorrow but all looks good in the DC neighborhood.
We knew there was a good chance the zombies would do something constructive before another break from work but the can might only be getting kicked down the road for 6 weeks. This means we could go through the same shenanigans by Thanksgiving but hopefully a grand bargain is reached once the zombies come back from their vacations. We won’t mention most of them just had the entire month of August off.
Despite the quick-fix and possibly more drama down the road, the market is rallying. We were watching the futures market ahead of the European open and they were showing a strong open here at home. Dow futures were up double-nickels around 2am (EST) and had doubled ahead of Wall Street’s opening bell.
We wanted to see the gains hold without the selling pressure afterwards during the zombies speeches and they did. In fact, the market is at session highs as we head to press.
We said yesterday in our midday update to remain bullish because nervousness and volatility were picking up. We wouldn’t call yesterday a capitulation day but it felt like it for some traders. Of course, today’s rally looks great on paper but the fact is the indexes are still in a trading range.
We said the range would be getting stretched a few weeks ago and we saw it to the high side with the Nasdaq and small-caps breaking out to new highs. And we saw it on the downside this week with the Dow and S&P.
The whipsaw action should become clearer now that the zombies appear to be negotiating with a clearer trend possibly developing over the next few weeks.
We have started our next batch of traders and our subscribers know where we stand. It is still a little early to go all-in until we do get a clearer trend but we have been throwing chips into the pot.
As we head to press, the Dow is up 240 points to 15,043 while the S&P 500 is surging 28 point to 1,685. The Nasdaq is zooming 75 points to 3,753 and the Russell 2000 is higher by 22 points to 1,065. The VIX is down 2.94, or 15%, to 16.66.
We’ve got some nice pin action going on with our current trades and we have a Profit Alert on our JC Penney (JCP, $8.00, up $0.11) puts. We have closed the last quarter of the trade and the total return was 319%. On 9/11, we recommended the November 12 puts (JCP131116P00012000, $3.95, down $0.25) at 65 cents and we have been ringing the register for a month on the stock’s drop from $14 to $8.
We have a lot more to talk about with our current trades. Subscribers, check the Members Area for our thoughts and we will be back in the morning with a full report.
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