The Safe Way To Play This News-Driven Market

I stepped away from my computer and the constant blare of CNBC for a short time yesterday afternoon. I came back less than an hour later to a chart showing the Dow was down more than 2% in a matter of minutes.

I was surprised by the move because the price action had been slow all day. I knew I had missed some news.

A quick search showed that President Trump had decided to put stimulus talks on hold. That set off a wave of selling.

That’s important because traders appear to be nervous about the election. This news could be the start of a series of important events and market reactions. On average, I expect the reactions will be similar to what we saw yesterday. Traders seem to be looking for a reason to sell.

And that makes sense. Stocks are now about breakeven for the year. Stepping aside for the election could help traders avoid losses and secure a bonus for the year. This means down moves could be quick when they occur this month. Under that strategy, traders will most likely be aggressive when a trend emerges after the election.

How I’m Trading Right Now

The strategy for many is to avoid losses for now and trade the trend, whichever way it develops, in November.

That’s why I’ve continued to pound the table and advocate for a cautious approach for individual traders.

But as I always say, that doesn’t mean we need to sit on the sidelines. In fact, one recent trade opportunity I’m comfortable with is in Nike, Inc. (NYSE: NKE).

Take a look at the chart below. According to my award-winning Income Trader Volatility (ITV) indicator, the stock just flashed a “buy” signal.

The company is also still popular in an important demographic. Barron’s reported

Piper Sandler’s latest semiannual survey of U.S. teenagers is out, and the results show that these shoppers are warming up to new brands even as old favorites stay in the mix.

A survey of some 9,800 people, conducted between August 26 and Sept. 22, showed that Covid-19 appears to have hurt teens financially. Their self-reported annual spending hit $2,150, down 9% year over year, and the smallest total since the firm began its surveys 20 years ago. Just one-third reported having a part-time job, down from 35% last fall.

That said, 84% had visited a retail store since the start of the pandemic. And 81% plan to in the next six months.

As for individual brands, analyst Erinn Murphy notes that Nike (NKE) retained its spot as the No. 1 apparel brand for a decade straight. It even extended its lead over rivals, gobbling up a market share of 27%, 4 percentage points more than a year earlier.

It’s interesting that teen shopping habits are little changed by a global pandemic. This news will help NKE meet its earnings targets. Earnings aren’t expected until December, so there is little earnings risk in this recommendation.

The daily chart shows significant support at $120, the bottom of the gap that followed the most recent earnings report.

This further limits our potential risk, making NKE an ideal opportunity. Bullish traders could simply buy the stock. But as many of you know, I’m a fan of generating income on trades like this. So a quick put-selling trade makes sense with this setup. It allows traders to get in and out, risking minimal capital, and generating income in the process.

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