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Market Is Vulnerable To A 1-Day Drop - This Event Today Could Spark Profit Taking

Posted by Pete Stolcers on November 13

Posted 9:30 AM ET – The narrative has not changed much overnight. Stocks continue to float higher during this light news cycle. Momentum favors the upside, but the volume is light and these gains can easily be stripped away. Buy back your bullish put spreads for pennies and wait to reload.

President Trump did not provide any new information on trade negotiations with China during his speech yesterday. He believes the US has the upper hand and he will not remove tariffs to the degree that China wants. Trump said that a deal is close, but if it doesn’t happen tariffs will increase. The market has priced in a truce and I believe surprise favors the downside.

China’s CPI spiked to 3.8% last month and it was driven by higher food prices. The boycott of US agricultural products is hitting Chinese consumers in the pocketbook. Tomorrow China will release industrial production and retail sales.

All is quiet on the Brexit front until the December 12th election.

The impeachment hearings today won’t have a market impact. Even if Democrats controlled the Senate they would not get the two thirds needed to impeach the president. This is an exercise in futility and investors are not paying any attention to it.

The Fed chairman will testify before Congress today. Investors will be reminded that the Fed is done for the year and this could spark some profit-taking.

Stocks are trading at the upper end of their valuation range and the headwinds are stiff.

Swing traders – I hope that some of you took profits yesterday on the SPY position. It was one penny from our target of $310 (high $309.99). Place an intraday stop of $307.50 and a target of $309.80. If you are not filled exit the trade on the close today. The market momentum has stalled and I believe we are due for a pullback. It might not last more than a day, but I would like to be on the sidelines. You should’ve been able to repurchase most of your bullish put spreads for pennies and your risk should be minimal at this stage. Continue to buy back those spreads. By the end of the week you should be in cash waiting for a market dip. Once the selling starts, bullish speculators will be flushed out. I would like to establish new trades around the SPY $302 level. I will post the weekly swing trading video tonight and I will highlight the next round of bullish put spreads.

Day traders should look for relative strength early in the day. Yesterday I made nice gains on a handful of trades in the first 45 minutes and I watched from the sidelines the rest of the day. You have to be able to find the stocks instantly on the open and you have to jump on them right away. I like using the following Option Stalker searches: Heavy Buying, Relative Strength 30 and 4 Bar Breakout. It’s important to find stocks with heavy volume and you need to include this variable and all of your searches. The stock has to do all of the heavy lifting because there is no market tailwind.

I feel the market is vulnerable to a one-day selloff. The news could come from a trade tweet, a comment from Fed Chairman Powell or weak economic data from China. The source is not important since the profit-taking will be short-lived. Ultimately, we want to get long at lower levels. Take profits on bullish put spreads, reduce risk and get ready to reload.
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