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Quadruple Witching Could Spark A Short Squeeze Thru the All-time High

Posted by Pete Stolcers on September 19

Posted 9:30 AM ET – Yesterday the market dipped after the FOMC statement, but it recovered late in the day. The Fed remains flexible and it will monitor conditions. Fed officials in aggregate feel that no additional rate cuts are needed this year. The market is pricing in one more move and that is overly optimistic. Stocks weathered the hawkish news and we could be stuck in a trading range.

A trade deputy from China will arrive today to discuss the framework for face-to-face negotiations in October. From my perspective this is “lip service” to calm investors. There will not be a trade deal before the 2020 election and it might not matter. Domestic economic conditions are strong (retail sales, ISM services and ADP) and consumers are not paying higher prices.

The Fed chairman did address the overnight repo problem and they are injecting liquidity. This will not be a long-term problem and it was attributed to quarterly tax payments by corporations.

Brexit has been delayed and it’s unlikely that Boris Johnson will be able to force a hard exit on Halloween. This uncertainty will not weigh on the market into year-end.

Earnings season will begin in two weeks.

Swing traders should remain patient. We did not get the pullback I was hoping for and we are stuck in this range. Asset Managers will not be overly aggressive at the all-time high when stocks are trading at the upper end of their valuation range. The Fed is not likely to ease this year and that means a pullback could happen at any time. We have to buy at a better level. The upside and downside risks are fairly balanced. In my weekly videos I will be highlighting stocks with relative strength and we will be looking for high volume situations. Stocks will need to do it all on their own in the absence of a market tailwind.

Day traders should look for movement today – this is a quadruple witch. I believe that we could see a short squeeze above the all-time high. Yesterday’s sharp reversal leads me to believe that call sellers at the all-time high could be forced to cover. I will be looking for opportunities to trade from the long side. Stocks with heavy volume and strength relative to the S&P 500 are the way to go. Support is at SPY $299 and $297. Resistance is at SPY $302.40

The reversal on hawkish news yesterday confirmed that the bid is strong. The downside risk seems relatively contained, but resistance is stiff at the all-time high. Perhaps quadruple witching can push us through.

We needed a big drop yesterday. That would have generated volume and in its absence we are likely to see suppressed activity.
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