Daily Commentary: June 16, 2020

Jeremy Engelbrecht1Option Commentary

Market Support Has Been Confirmed – Quadruple Witching and Money Printing Will Fuel This Rally

Posted by Pete Stolcers on June 16

Last week I told you that the market rally was overextended and that bullish speculators would be flushed out. I also mentioned that the dip would be brief and deep and that this would set up an excellent buying opportunity. In my comments yesterday I mentioned that this third test of major support at the 200-day moving average would hold if the market made a new high after two hours of trading and I advised you to get long. This drop has ended and we are likely to rally into quadruple witching.

Yesterday we learned that the US Treasury is going to start buying corporate bonds. This sparked a rally and the S&P 500 Monday and it was up 35 points overnight before the next round of news hit. President Trump is proposing a $1 trillion infrastructure bill and now the S&P 500 is up 90 points before the open.

The threat of new Coronavirus cases is not dampening spirits. Central banks are printing money like mad and this powerful force will keep buyers engaged. President Trump said that no matter what he will not shut the economy down again.

Economic data points domestically have been better than feared and China showing steady signs of recovery.

Swing traders should start selling out of the money bullish put spreads on tech stocks. Don’t chase this opening rally. There will be opportunities to sell the spreads in the next few days. I expect at least a compression on the open this morning.

Day traders should wait for the bid to be tested today. If the market compresses during the first hour of trading we are likely to drift higher in a very lackluster manner. The price action will be very tight. If the early gap is faded and the low of the day fails, we will fill in some of the gap. Once this dip finds support, we will have an excellent opportunity. Focus on the tech sector. I believe that the chances for a gap reversal are slim (5%). If this is going to happen it will take place in the first 45 minutes of trading. Consecutive long red bars closing on their low in the first 30 minutes of trading will indicate that this is possible.

I believe that stocks will open higher and that they will hold most of the gains. Once the bid has been confirmed, stocks will float higher. Quadruple witching will fuel this move the rest of the week.

Get long!

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