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Look For These Stocks and Use This Option Strategy - No Market Tailwind

Posted by Pete Stolcers on October 24

Posted 9:30 AM ET – The market volume remains light, but that should change today. Mega cap tech stocks are reporting and earnings season is in full bloom. Results have been better than feared and the bid is solid. Sell out of the money bullish put spreads on strong stocks.

Microsoft posted good earnings yesterday and the stock is up before the open. Amazon and Intel will report this evening. Stock valuations are at the upper end of their range and most have been able to tread water after the release.

A possible truce with China could officially be signed in November. The market is within striking distance of the all-time high and tariffs have not spoiled investor confidence. The market does not want the trade war to escalate and a deal would remove uncertainty.

England passed a vote on a Brexit plan this week. I view this as a positive development and it removes uncertainty. The timeline for the next vote is pending and the EU will vote on an extension to the October 31st deadline.

Flash PMI’s were largely in line this morning. The results were soft in Europe. Economic weakness is starting to spread to the US, but the Fed is prepared to ease.

Next week the FOMC statement will be released. The market is addicted to easy money and traders want another rate cut this year. The tone should be relatively dovish.

Swing traders should sell out of the money bullish put spreads on strong stocks. Look for post earnings plays where the stock has gapped through horizontal resistance. That previous resistance is now support and we want to sell puts below that support. Option Stalker finds these setups. We don’t want to get more aggressive since resistance at the all-time high is stiff (double top). Asset Managers are not chasing stocks at the upper end of their valuation range and trading volume has been well below average signaling a low level of conviction. We can’t get more aggressive with our longs until we have a pullback. Out of the money bullish put spreads allow us to distance ourselves from the action and to generate income while we wait for that dip.

Day traders should not expect a lot of market movement. Zero in on stocks with heavy volume and breakouts. Post-earnings plays are ideal and Option Stalker finds the best ones. I have been noticing better price action on the short side. The momentum and follow through has been good once the decline starts. You won’t have much of a market tailwind and that’s why you need heavy volume. I have been searching for volume spikes on a 5 minute basis and 15 minute basis in Option Stalker during the day. That’s how I found SHOP, BYND and BCE yesterday.

Earnings season will provide us with lots of action and I suggest focusing on those stocks. The market should have a decent bid for another week with a slight upward bias.
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