Take Profits On Put Positions Now. Wait For A Call Buying Opportunity. Major Support At This Level

June 21, 2013

We’ve had a killer week and we nailed that move. I don’t advertise on this site and my only motivation is traffic and comments. If you follow me on Twitter, please tell your friends. I would also like to hear about your success. Please post a review on INVESTIMONIALS This takes a couple of hours to produce each day – keep me motivated.

The market has been in free fall since “Fed Speak” on Wednesday. Traders were expecting a softer tone and the timetable for tapering was moved up. Week flash PMI’s and minor credit concerns in Europe added fuel to the fire. By the close of trading the market had fallen to a major support level.

I didn’t have any reason to sell my puts throughout the day. Once the momentum was established, stocks continued to slip. I did take profits on the close and that was a fantastic 24-hour trading stretch. Take profits on put positions this morning!

This was the second shoe. We fell more than I expected and this support level represents the all-time breakout in May. If it fails, we are in trouble technically (unlikely).

It is quadruple witching and you should expect some volatility. That means the downside will be tested. Support levels have been broken and the SPY might make a move towards the 100-day moving average ($158). I doubt we will get that low, but if we do we won’t be there long. If I see an intraday reversal I will buy calls and take a decent position. If the market does not test the downside in the first hour of trading I will buy calls, but not as many. I want to see that support.

The Fed will not taper until they see improving economic conditions. Asset Managers are not going to wait, they will sell bonds now. Interest rates are moving higher and we don’t have confirmation that activity is improving. The market does not like this combo and it will take time for it to get used to higher yields.

This is like taking a cold shower – the initial shock wakes you up, but eventually you get used to the temperature. In the end you are clean and invigorated. We need to get off of artificial life support and this is the first step.

China loosened money supply overnight. They do not want an economic to free fall.

The IMF said that it will suspend funding to Greece if the EU does not come up with €3 billion in aid. There was a small hole in the funding that needed to be addressed. We are not talking about a lot of money. Credit concerns have inched higher, but I do not believe they will be an issue.

The news is fairly light next week. Durable goods orders, GDP and initial claims will be released. The market will regain its footing.

As I’ve been telling you, the market is transitioning. In the last year the S&P has been up 25% and it needs to rest. This rally will die hard and that means the short covering rallies will be fast and furious. You need to take profits on put positions when the selling pressure is heavy.

I am looking for a call buying opportunity. I am flat and I will watch the action today. I want to see a selloff and an intraday reversal. If we continue to drift lower, I will stay on the sidelines.

The move this week simply confirms the short term top. We will not breakout to new highs until we see economic growth. That will take a few months to play out and we will trade in a range this summer.

That means we won’t get any sustained moves. From a trading perspective we should expect directional moves that last 2 to 3 days. Get in, set your targets and take your profits before they vaporize.

Stick to a hit and run strategy and be prepared to trade both sides.

Take profits on puts today and wait for an opportunity to buy calls.
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