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Coronavirus Starting To Taper - Very Bullish Pattern Monday [Use This Strategy Today]

Posted by Pete Stolcers on February 11

Posted 9:30 AM ET – Yesterday the S&P 500 started the week off on a sour note and it didn’t take long for buyers to step up. In the last three weeks we have seen selling on Friday and buying on Monday. The market continued to gradually grind higher and it closed at a new all-time high. A bullish engulfing pattern resulted and we are seeing follow-through buying this morning.

The Coronavirus is starting to taper off. Yesterday there were 2000 new cases reported and that is down from 3000 new cases the day before. Factory workers in China are gradually starting to go back to work this week. More than 300 Chinese companies are seeking bank loans totaling over $8 billion due to the virus. I suspected this might happen, but the number is much lower than it could have been.

This morning Fed Chairman Powell will testify before Congress. We have already heard from one official that the impact of the Coronavirus is being monitored very closely. This means that the Fed will remain accommodative even in light of strong domestic economic releases.

Last week ISM manufacturing, ISM services, ADP and the Unemployment Report all came in better-than-expected. The economic releases will be light this week.

Earnings season is starting to wind down and the results have been excellent. Stocks are fully priced at a forward P/E of 18, but there still seems to be some “gas in the tank”. Asset Managers are buying every dip.

Swing traders should stick to selling bullish put spreads. I was tempted to buy SPY last week, but I think it would be more prudent for us to simply focus on this options trading strategy and to allocate more money. It allows us to distance ourselves from the action and bullish put spreads take advantage of accelerated time decay. It’s critical to find stocks with relative strength that have reported excellent earnings. I like stocks that are just starting to break through resistance and then I sell the bullish put spread below that level. Heavy volume is another variable that I use in my Option Stalker searches. If the market has some nervous jitters you might need to weather one or two speed bumps. As long as we do not see consecutive red candles on the daily SPY chart, we will be in good shape. Support is at SPY $330.

Day traders should carry a little overnight risk. In the chat room yesterday I mentioned that I would be holding some SPY calls overnight. The intraday price action has been fairly tight early in the day and trading volume was down 9% yesterday. These tight compressions lull you to sleep and I missed the afternoon run. Trade from the long side and look for strong stocks with heavy volume right out of the gate today. The first six candles will tell us if the market is going to move higher. We want to see consecutive long green candles closing on their high with little or no overlap. If you see this we will have a bullish trend day. If you see a mix of green and red candles with long tails, it will take time for the momentum to get established and we could stay in the first hour range.

Look for positive price action today and dovish comments during Powell’s testimony.
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