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Market Will Tread Water - Sell Bullish Put Spreads - Doldrums Ahead

Posted by Pete Stolcers on June 19

Posted 9:20 AM ET – The market is treading water near the all-time high and it has weathered a Fed rate hike. The news will dry up for a few weeks and the S&P 500 should be able to hold the breakout at 2400. As earnings season approaches the bid will strengthen.

Swing traders should sell out of the money bullish put spreads. This strategy will allow you to distance yourself from the action and to take advantage of time decay. I’ve been encouraging you to do this for the last few days and this opportunity will pass quickly. By now you should have most of your positions on. It is critical to make sure that technical support lies between the stock price and the short strike price. If technical support is breached, buy back the put spread.

Day traders need to tread cautiously. The trading volume will decline and the daily ranges will compress. I don’t like to trade up opens so I won’t be very active today. It is much harder to spot relative weakness since all stocks shoot higher. After the initial run, stocks pullback and they flat line. Day traders who were lured in are not able to recover.

I don’t suggest fading the early rally. You don’t want to be on the wrong side of the market. Flat opens are fine; you just have to wait for the momentum to build in one direction or the other. Down opens are best for day trading. Relative strength is easy to spot and you can buy knowing that you are trading with the major market trend. You just have to wait for support to be established.

Over the next few weeks I will generate income from bullish put spreads and I will day trade from the long side when the market opens on a weak note.

Tech stocks have been beaten down in the last few weeks and they are likely to bounce. There will be some nice opportunities here.

Don’t get lured in by the early rally today. Be patient and wait for a pullback. When it happens strong stocks will hold their ground and they will be ready to move higher when the market regains its footing.

I sense a very dull week ahead. This is perfect for bullish put spreads and not so good for day trading.
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