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Market Broke Horizontal Support - Add More Puts If This Happens

Posted by Pete Stolcers on March 25

Posted 9:30 AM ET – Last week the price action was very volatile. Stocks tried to breakthrough major horizontal resistance and twice they were repelled. The Fed quickly took its foot off the brake and investors are concerned that deteriorating global economic conditions will spread to the US. The US yield curve inverted briefly for the first time in 10 years on Friday.

The market is pricing in a great trade deal with China, an orderly exit for England and robust economic growth in the US. I believe that all of these events are tenuous and that surprise favors the downside.

Last week Trump said that tariffs on Chinese goods might remain after a deal is signed. China will not sign a trade deal with this condition. The summit has been postponed until June and there many unresolved issues.

Theresa May might be forced to resign. England has two weeks to come up with a new plan and the probability of a hard exit increased last week when the EU said that there will not be any additional extensions.

US economic data points have been strong. Every other economic powerhouse (China, Japan, Germany, England, France…) has deteriorating economic growth. It’s just a matter of time until it spreads to the US. When it does we will see profit-taking.

The news is fairly light this week and official PMI’s will be released next Monday. That is the next big news item.

Swing traders are short half a position of SPY from Friday when it closed below $281. We will add the second half if the SPY trades below $275. Use a closing stop of $284 on our current position.

Day traders should favor the short side today. The selling pressure was heavy Friday and I’m expecting follow-through this morning. The market won’t rally until the downside is tested. Support is $275.25 and resistance is $281. Use $281 as your guide and favor the short side as long as we are below it.

We are in a news vacuum and the momentum from Friday could gain traction this week.
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