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If Market Closes Above SPY $300 - Hold Some Calls Overnight - Pending News

Posted by Pete Stolcers on October 22

Posted 9:30 AM ET – Yesterday the market gapped higher and it was able to hold the gains. Stocks closed on their high and this morning minor resistance at SPY $300 will be challenged. The overnight news was good and we are likely to see a grind higher. Trading volume is anemic and that signals a low level of conviction.

Trade negotiations between the US and China remain constructive. The rhetoric has been positive and a mini deal could be signed in November. Investors would be satisfied with this outcome. No one expects a substantive deal before the 2020 election.

Boris Johnson plans to hold a Brexit vote tonight. He’s had to cancel it twice. If it passes it would remove a tremendous amount of uncertainty and the market would rejoice. The downside is fairly limited since the “can” could get kicked down the road if the vote is no.

Earnings season has been better than feared. Guidance has been good and the reactions have been positive even though valuations are little stretched. Mega cap tech stocks will begin reporting and the bid typically remains strong early in the earnings cycle.

The FOMC will meet in a week and traders are expecting a dovish tone after a soft round of economic releases (ISM manufacturing, ISM services, ADP and the Unemployment Report). There is some “Fed speak” today at 1:00 PM ET.

Swing traders should focus on selling out of the money bullish put spreads. I’ve been highlighting these stocks in my videos and yesterday I mentioned some of the Option Stalker searches we are using to find candidates. I like stocks that gap higher through horizontal resistance after the release and I make sure the short strike is below the opening price the day of the gap. If that price fails I buy back the spread. Not all the glitters is gold, be patient and be selective. Option Stalker has a search that allows me to review stocks that have posted earnings in the last two weeks. I often wait a day or two so that I can fully gauge the reaction.

Day traders should focus on the long side if the market can get through the high from last Thursday. The trading volume has been extremely light so reduce your size and your trade count. I plan to keep a few overnight longs. I view the upside rewards of the Brexit vote to be greater than the downside risks.

Look for quiet conditions with an upward bias. A mini deal with China and a possible Brexit agreement would greatly reduce uncertainty.
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