Debt Ceiling Watch

May 17, 2023
Author: Peter Stolcers, Founder of OneOption

If politicians overplay their hands, watch for a really ugly day for the market at the 12th hour. That will be a good opportunity to sell put spreads. Here’s why.

PRE-OPEN MARKET COMMENTS WEDNESDAY – The macro backdrop has not changed in the last month and buyers and sellers are paired off. Time will determine which way we go and I could make a compelling case for either direction.

The debt ceiling is grabbing all of the headlines. Both sides want to flex their muscles for as long as possible and that means this will drag on until the 12th hour. If we bump up against the debt ceiling, the market will have a big down day (100 S&P points) and that will get the politician’s attention. This would be a good buying opportunity (or sell bullish put spreads on tech stocks).

Even at the 12th hour, DC will be able to sign very temporary funding bills that last a week or two until they finalize the agreement.

The calendar is light and Memorial Day is approaching. The S&P 500 is compressing in a tight range. You predominant thought each day should be, “The market is not going anywhere.” When we test one extreme for the day and the move starts to tire, look for a reversal. As long as you are focusing on stocks with D1 technical breakouts that have heavy volume, you will be in good shape. You won’t have a market tailwind, but you won’t have to worry about the rug getting pulled out either. Focus on a few stocks that are oblivious to the market and that are marching higher or drifting lower.

Support is at $409 and resistance is at $414. We will be very lucky to get out of that range.

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