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Market Support Failed Easily - Buy Puts and Use This Stop

Posted by Pete Stolcers on August 13

Posted 9:30 AM ET – Yesterday the market easily slipped back below the 100-day moving average and the selling pressure was steady all day. August is typically a weak month and the news has a negative bias to it. When the Fed and Congress are in recess investors get nervous.

Trade talks with China have stalled and new tariffs will be imposed in two weeks. Riots in Hong Kong are escalating and the airport has been closed for a second straight day.

Germany’s economy could fall into a recession. A recent survey of economic sentiment among investors fell to minus 44.1 from minus 24.5 in July. Germany’s industrial production has been extremely weak.

England is preparing a bailout for companies that might be hurt by a hard exit from the EU. This could be a train wreck in October.

Credit risks in Argentina are rising.

The US yield curve is at its flattest level since 2007. This signals tough economic conditions.

Stocks are trading at a forward P/E of 17 and this is at the upper end of the valuation range.

The news cycle is light for the next two weeks and that favors the current downward momentum. Swing traders should short the SPY on the open this morning. Use a close above the 100-day moving average as your stop. Sell half of the position at SPY $282. I believe that we could test the 200-day moving average in August. Set that as your target for the other half of the position.

Day traders should favor the short side. SPY $288 was resistance and it became support last week. That level will be breached this morning and the next support level is SPY $282. Use SPY $288 as your guide. We could see a nasty round of selling today.

Get short.
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