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Market Down Again – Here’s How To Trade the Drop
www.1option.com
A couple of weeks ago I suggested keeping your swing trades to a minimum. When we got the bid drop Friday I told you not to panic on a holiday shortened session. This was a warning and you needed to aggressively pare your risk on the bounce Monday. This bull market has been strong and I was fairly confident we would get a bounce. Sunday night I did a video and I explained why we were likely to get another drop Monday or Tuesday. This morning the S&P 500 is down 35 points before the open.
I would not rush in to buy bounces this morning. The second wave of selling needs to run its course. Dip buyers from Monday are going to take a little heat today and they will be flushed out. Longer term swing traders who have long exposure might have weathered the drop Friday and they did not lighten positions yesterday. I know that because we had a gap and go formation. If “risk off” was heavy, we would not have rallied like we did.
Swing traders: This second leg lower will confirm (or violate) support. The second mouse gets the cheese. Wait for technical support that is above the low from Friday. If we get another big bounce and a strong close today, you can sell out of the money bullish put spreads. Expect to take a little heat. If the market closes near the low from Friday, we have more work to do on the downside and you should hold off on bullish put spreads.
Day trader: I believe an early bounce today will set up an excellent short. Be patient and wait for a good 1OP cross.
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