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Market Will Float Higher On Very Light Volume Until the Bill Is Signed

Posted by Pete Stolcers on November 26

Posted 9:30 AM ET – Yesterday the market started the week off on a positive note and it rallied to a new all-time high. Investors are optimistic that a trade truce with China will happen and the probability was bolstered when Trump did not voice his support for pro-democracy protesters in Hong Kong. If he waits much longer Democrats will claim that Trump cares more about a precious trade truce with communist China than he does freedom fighters. He has a bill on his desk waiting to be signed that supports pro-democracy demonstrators and when he signs it China will retaliate.

As I’ve been pointing out in my comments this week, a trade truce with China is not that important. We are likely to see profit-taking on the news, but the dip will be brief and shallow. We will wait patiently and by that buying opportunity.

Democrats are taking a hit in the polls. Instead of signing the USMCA which could add 1% to our GDP growth, they are wasting taxpayer money trying to impeach Trump. This is an exercise in futility since it will never get a two thirds majority in the Senate.

We are in a news vacuum for the rest of the week and trading volume will be extremely light.

The economic calendar will be packed next week and the numbers should be good.

Swing traders are long VXX. I don’t know if the president will sign the bill this week or next week, but it is coming. The backlash from China will spark profit-taking and bullish speculators will get flushed out. Keep your credit spreads (bullish put spreads and bearish call spreads) to a minimum while we wait. For bullish put spreads I like stocks that have strong upward momentum, relative strength and good volume. When they break through technical resistance levels I like selling out of the money bullish put spreads with the short strike price below technical support. If that support is breached, buy back the spread. For bearish call spreads I am looking for stocks that rallied through resistance in the last two weeks and that have fallen back below that level. These stocks are relatively weak and I like selling out of the money bearish call spreads were the short strike price is above technical resistance. Option Stalker helps us find these stocks. I also want to see relative weakness and heavy volume. If that technical resistance is breached, buy back your call spread. This is a low probability trading environment and you should be almost entirely in cash. I will be posting my weekly swing trading video tonight so that we have some trades to look at Wednesday.

Day traders should also tread cautiously. Look for stocks with heavy volume. You won’t get any help from the market and the stock needs to do all of the work on its own. If you trade from the long side, keep your positions small and know that a bearish tweet could come at any time. Yesterday there was an unscheduled press conference. Watch for these and make sure you are sidelined. The market is flat before the open and the action will be extremely dull today. Error on the side of caution and keep your trades to an absolute minimum. If you can pick off one or two good trades, call it a day.

Take some time off and enjoy the holiday with your family.
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