E-mini S&P 500 (December): Settled at 3702, up 11.25
E-mini Nasdaq-100 (December): Settled at 12,637.50, up 41.50
Yesterday’s landscape was as ripe for the picking as they come. Here, we’ve detailed the path of least resistance to be higher, therefore, we’ve been bullish in bias and positioned accordingly since mid-to-late September. Prior to this, we’d turned bearish in bias for a short period in August through the onset of September.
On the futures side, we’ve taken advantage of this rally through the highly liquid Micro E-mini contracts, specifically the Micro Nasdaq and Micro Russell 2000. These contracts are 1/10 the size of the regular E-mini contracts and provide such flexibility in maintaining a directional position. Think about it, 10 years ago the S&P was at 1200 and the NQ just above 2000; they’re now 3 and 6 times those levels, but this doesn’t mean you need to trade 3 and 6 times larger.
On the wealth management side, we’ve discussed an overweight position in industrials and financials while maintaining strong exposure in tech leadership. Although this is a rally that one shouldn’t fight, it certainly doesn’t mean corrections of 2-5% can’t happen at any time or for any reason. This is where your overall trade plan, objective, and timeline matter most. As we’re more intermediate to long-term in our trade plan, our objective is to ride this technical breakout as fresh money comes off the sidelines due to fewer uncertainties and during a seasonally bullish time of year.
In order to ride this to the full extent, one must further their trade plan and size their position accordingly to withstand swings and provide enough psychological bandwidth to allow it to play out. We expect such tailwinds to reach peak exhaustion through the first half of the first quarter of 2021, at that point we could expect a reasonable correction. Again, please don’t misinterpret us, there will be hurdles and there will be reasons for market gyrations and therefore (to reemphasize), your own trade plan, objective, and timeline matter to how you position.
In the end, one must also never forget that it’s just one trade—we encourage you to frequently remind yourself of this. Furthermore, market catalysts can quickly change from day to day; be ready to adapt accordingly.
Of such hurdles, the continued surge in Covid-19 cases and the fear of fresh lockdowns and restrictions are certainly atop our list. Although the vaccine has provided a powerful tailwind to risk assets broadly, there are still questions as to its delivery. On top of that, this morning UK health regulators warned of allergic reactions to Pfizer’s vaccine.
Another of our largest concerns is, of course, tied to Washington. The market is pricing in fiscal stimulus before a deal has been reached. Whereas we fear that the results will underwhelm markets, they could also top expectations. Day in and day out, as a trader and investor, you face these hurdles and many others, such as U.S.-China relations; it’s how you adapt your trade plan, objective, and timeline in response to these hurdles that matters most.
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