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Get Your Wish List Together On This Market Drop - Be Ready To Buy

Posted by Pete Stolcers on June 3

Posted 9:30 AM ET – Unlike the major financial new outlets, I don’t try to justify every wiggle and jiggle in the market. The fact remains that there are buyers and sellers and that this is a “dead spot” for the market. Economic numbers will spark some activity today and tomorrow, but after those releases the action will die down. I am expecting a trading range for the next month and a half. Buy dips and take profits near the all-time high… repeat.

Stock valuations are rich and another quarter of healthy profits will bring them back to a more normal level. Inflation worries will take time to resolve and many analysts believe that the Fed’s forecast is too conservative. We have further evidence of inflation in some of the overnight news. The Fed may have to discuss a timeline for tapering and tightening of any kind will spark profit-taking. China’s market is in bear territory and I don’t believe the S&P 500 will break out until we see traction in Asia. These forces are keeping a lid on the market.

Domestic economic conditions are improving rapidly. ISM manufacturing was above 61 yesterday and that is an incredibly strong number. ISM services will be released today and ADP reported that almost a million new jobs were created in the private sector during the month of May. ADP was incredibly strong and that bodes well for the Unemployment Report tomorrow. I’m expecting a big upward revision to April’s number. The key component to watch Friday is Hourly Wages. If it is greater than .7%, it will spark inflation fears.

The opposing market forces are strong and I believe the S&P 500 will stay in a trading range between 4000 and 4200 for at least a month. Don’t chase rallies, buy dips.

Swing traders should be on the sidelines waiting for the next market drop. Have your bullish stocks ready because you won’t have more than a day or two to enter your bullish put spreads. Stocks with relative strength and heavy volume that are breaking out through technical resistance are your best plays. Sell the out of the money bullish put spreads below technical support and let accelerated time premium decay work its magic. This is a light new cycle and we are heading into the summer doldrums. A drop to the 50-day MA on the SPY would be a good level to sell another round of bullish put spreads.

Day traders should take advantage of sector rotation. Yesterday MEME stocks were on fire; today they are giving those gains back. The “hot” stocks change daily and Option Stalker searches help us find the best day trading opportunities. Yesterday I said that I don’t believe that the market will have a sustained rally until the downside is tested. Tuesday’s gap reversal revealed selling pressure and Wednesday we saw late day selling. This morning the S&P 500 is down 30 points before the open and overseas markets were weak. This is a low probability trading environment and you should trim your size and your trade count. Down opens provide the best day trading scenario because relative strength is easier to spot. Wait for market support and buy stocks with relative strength and heavy volume when they are breaking through technical resistance on a daily chart.

Support is at SPY $412 and $418. Resistance is at $422.
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