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Our Bullish Put Spreads Did Great - Only Roll A Few - Reduce Risk Into Year End

Posted by Pete Stolcers on December 20, 2019

Posted 9:30 AM ET – The market staged a nice little rally yesterday. You don’t know when these moves up are going to materialize so you need to be long overnight. Expect small gaps higher and compressed trading ranges during the day for the rest of the year.

The USMCA was passed overwhelmingly by the House and now it will go to the Senate. This news is “baked in” but the actual signing might spark a little buying.

The Phase 1 deal with China will probably be signed early in January.

Boris Johnson is pushing forward with legislation and Brexit is likely before January 31st.

A budget extension will be signed before the midnight deadline tonight to avoid a government shutdown.

Uncertainty has largely been removed from the market during the last two weeks. I don’t see any speed bumps. Stock valuations are getting a little lofty at a forward P/E of 18 and that poses the greatest current threat. As long as stocks grind higher the dips will be shallow and brief. If the market spikes higher we can expect profit-taking.

On a technical basis the S&P 500 has poked through the upper end of the trading channel on a daily and a weekly basis. That typically leads to selling and the index is likely to fall back in the channel in the next few weeks.

Swing traders should place an order to exit our SPY position at $324. Many of your bullish put spreads will expire today. Only roll one third of those positions (or less) and focus on stocks that have not made big moves in the last two weeks. Lean on technical support and make sure the short strike price is below it. All of the stocks highlighted in this week’s Swing Trading Video have performed well. This is a time to reduce our risk exposure and you can buy VXX for extra protection. I plan to be mainly in cash by the end of the year and I will wait for a pullback to reload. We used this tactic at the beginning of the month and our patience paid off. I posted a video of a swing trade I really like yesterday.


CLICK HERE TO SEE THE OPTION SWING TRADE I LIKE

Day traders should look for rotation into laggards. We have been able to catch some really nice stock day trades in a flat market. Option Stalker searches that look for heavy volume and relative strength have been golden.

Today we will be able to bank profits on our bullish put spreads. Reduce your exposure into year-end and wait for the dip.
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