Market Will Stabilize – Start Looking For Bullish Put Spreads!
As I mentioned in my comments yesterday the market had more work to do on the downside. The reversal Tuesday was nice but it lacked conviction. Political news is dominating the headlines and investors are nervous. Stocks sold off yesterday and the market closed below the 50-day MA. The remedy for those jitters is corporate profits. This morning J.P. Morgan Chase, Wells Fargo and Citigroup reported.
The Secretary of State held a press conference yesterday after his meeting with Putin and the tone was confrontational. Russia has been supporting Assad in Syria and they don’t want a regime change. The market sold off after the press conference. Media speculation that Putin supports Trump should subside after the events this week.
The good news is that Trump’s other meetings with world leaders (China, Jordan and Egypt) went well this week.
The one piece of bearish news this week is the healthcare bill. In an interview Trump said that he still wants it passed before he addresses tax reform. The savings will help pay for tax cuts so it has to come first in his opinion. Unfortunately, the healthcare bill is a massive undertaking and it will delay tax reform for another year. Democrats will have their feet to the fire in June and that might force them to come to the table. That is when insurance companies have to declare if they will participate in the healthcare exchange in October. From what I’m hearing most of them will drop out and many (if not most) states will not have a single provider. Even with support from both parties this bill will take a very long time to hash out.
I hate to spend this much time on politics, but it’s driving the market.
Janet Yellen’s comments this week were fairly hawkish. The Fed sees improving global economic conditions and they plan to tighten. This is a strong headwind and every data point needs to support future rate hikes. The dismal jobs report and a soft ISM services report raised concerns that the Fed is moving too quickly.
Big banks posted earnings this morning and they all beat. The reaction is mixed. Most are near major support levels and they have plenty of room to run. Without financials the market will not rally. Keep an eye on this sector. It is the market barometer at this stage.
Earnings season typically attracts buyers. Mega cap tech stocks will start reporting and the bid should stabilize.
Swing traders can start looking for bullish put spreads. This wave of selling should run its course today. Look for strong technical support that is between the stock price and the short strike price. If support is breached, buy back the put spread. This strategy will allow you to distance yourself from the action and to take advantage of time decay. A major market decline is not likely during earnings season.
Day traders need to tread cautiously today. Trading volumes will decline ahead of the holiday and the price action will be choppy. I am going to wait for the early selling to run its course and I’ll be trading from the long side. There might only be one decent move this morning and I believe it will be to the upside.
Support is at SPY $231.50 and resistance is at the 50-day MA ($234.90).
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