How to Trade the Political News Tsunami
Don’t break out the bubbly just yet…
Political poison continues to seep into the markets as stocks thrash around in a wide range to begin the trading week.
Traders quickly gobbled up Friday’s nasty drop early Monday morning. The major averages soared nearly 2% as stocks appeared to stabilize near support.
Even the pessimistic financial media — who’ve pedaled nothing but doom and gloom since the February drop — were cheerleading the market higher:
Of course, that headline was posted well before the late afternoon drop.
Despite a gigantic head start, the bulls couldn’t hold onto their early gains. The averages started slipping a little after 2 p.m., triggering a wave of selling that lasted into the closing bell. By 4 o’clock, almost all the Dow’s impressive rally had disappeared. How’s that for volatile trading?
Unfortunately, the stock market is spinning its wheels in the political muck these days. Political uncertainty is the media buzzword that continues to pop up whenever a story breaks related to “trade wars” or the Mueller investigation.
Last night, we were treated to a report detailing a raid on Trump’s personal attorney Michael Cohen’s hotel and office. If that wasn’t enough breaking news to digest, we woke up to reports that China’s Xi Jinping has suddenly promised to lower auto import tariffs and open the nation to more free trade.
If we’re to believe the hype, China’s newest concessions in the ongoing trade spat have juiced futures back toward yesterday’s highs.
But it’s impossible to say what news events will “stick” these days. Toss in Zuckerberg’s testimony at a couple of congressional hearings and a Syrian chemical attack to begin the trading week and you have a full buffet of market-moving news. No wonder stocks don’t know which way is up right now. The bulls and the bears each have their own headlines to embrace when the market does their bidding…
Meanwhile, we’re trying not to step on any landmines as the market searches for direction. One of our main objectives going forward is to attempt to root out any outperforming names that could emerge as new market leaders once the dust clears.
Even with the market teetering near its February lows, some compelling names are beginning to emerge.
One of my top candidates in the new market leadership category is the cybersecurity sector.
When we last checked on this group back in March, the PureFunds ISE Cyber Security ETF (NYSE:HACK) was miraculously outperforming the Nasdaq Composite year-to-date, posting double-digit gains well before the end of the first quarter.
HACK has done an exemplary job hanging onto its gains as the major averages tested their correction lows earlier this month. A picture-perfect bounce in early February has helped this cybersecurity ETF maintain its gains during difficult market conditions.
While the Dow and S&P 500 remain stuck in the red on the year, HACK is on the comeback trail. After lagging the broad market for most of 2017, these stocks look ready to become one of our new market leaders — no matter what happens with the political bickering that’s dominating the news recently.
I know how difficult it is to shut out the noise and during volatile times like these. But when it comes to your trading, don’t put too much weight on the latest headline splashed across your screen.
As we’ve seen so far this month, it’s nearly impossible to figure out which developments will have a lasting effect on prices going forward. Our best bet at getting a leg up on this crazy market is by remaining laser-focused on price action.