Quad Witching Will Provide Some Movement Today – Market Is Trapped In A Range

Posted 9:30 AM ET - Yesterday's FOMC statement revealed that the Fed's initial estimate for transitory inflation was too low. They now believe that inflation will hit 3.4% instead of 2.4% this year. That will put upward pressure on interest rates and the Fed may be forced to tighten earlier than expected. The Coronavirus crisis has ended and economic conditions are improving. We can expect tapering later this year and that will keep pressure on the market. For the last six weeks I've been forecasting a trading range this summer and I don't believe we will break out of it for at least a month. Last week the CPI increased .6% and this week the PPI increased .8%. Both numbers were hotter than expected and inflation in China is also "hot". For years many central banks around the world have been hoping for inflation and now they are going to get it. Buyers are aggressive at the 50-day moving average and sellers are aggressive at the all-time high. Everything in between is noise and we don't have a catalyst to force a breakout either way. Trading volume is extremely light and this is a low probability trading environment. Swing traders with a 3 to 4 week time horizon should wait patiently for a market drop. Get your wish list together and be ready to strike. These market drops don't last more than two or three days. Your next round of bullish put spreads should generate income for the next month and by that time we will be one step closer to breaking out of this range. Until then, don't force trades. Option premiums are minuscule and you have to go very close to the money to generate a decent credit if you are a seller. It’s not worth the risk. If you're an options buyer, time decay is your enemy and the market is trapped in a tight range. Day trading has become more difficult in the last week. The last couple of months have been exceptional for day trading and that sector rotation has slowed down. We were in a "sweet spot" and there were fantastic opportunities. One day energy stocks would be hot, the next day biotech, the next day cyclical stocks, and the next day short squeezes. This rotation has stalled out and we are not seeing sustained directional moves intraday. Of course, there are exceptions and your job right now is to find them. Try to find two or three really strong movers and zero in on them during the day. This is hand-to-hand combat and it's tough to make money. Instead of looking for reasons to trade, you should be looking for reasons NOT to trade. Mistakes are costly and they are very difficult to recover from when there is no market tailwind. Heavy volume, technical breakouts and relative strength are even more important now than they were a week ago. The stock will have to do all of the heavy lifting. The market is going to test the low from yesterday and there is some support at SPY $420. This is a quadruple witch so we could see market volatility. A down open in an upward trending market is the best backdrop for day traders. Make sure that support holds before you take long positions and error on the side of caution. Relative strength will be easier to spot on the open because these stocks are moving against the market. Make sure these stocks hold the bid when the market dips (ideally they are inching higher). These will be the best plays as long as you have heavy volume and technical breakouts. Keep it light. Support is at SPY $420 and resistance is at the all-time high. . .

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