Posted by Pete Stolcers on September 6
Posted 9:30 AM ET – The market will have to weather a number of events in September. The FOMC meeting, the debt ceiling, North Korean missile tests, hurricane Harvey and hurricane Irma are casting a dark cloud over the market. Stocks are at their all-time high and resistance is stiff. I don’t believe we will have a meaningful rally until we pull back to the 100-day moving average.
This is a seasonally weak period for the market. If we breakout to a new all-time high, I will participate passively (only a few call positions and day trading from the long side). I don’t want to have the rug pulled out from under me. If the SPY pulls back to the 100-day moving average we will have an excellent entry point and the market will slingshot to a new all-time high into year-end. This is the trade that we will be waiting for.
In the next few weeks there might be a shorting opportunity, but it is only for nimble traders. The market is in a nine year uptrend and it is foolish to pick tops. Pullbacks look great for a day and they reverse instantly. These short covering rallies are very painful if you get caught on the wrong side. Your shorts should be confined to day trades or small swing trades. Market declines barely get going and we have not seen back-to-back declines in a long time.
The Fed will tighten on September 20 by reducing its balance sheet. It will also set the tone for a December rate hike. Two weeks after the FOMC meeting, our country will hit the debt ceiling. Politicians will engage in mudslinging and it won’t be extended until the last second. Hurricane Harvey has already caused epic destruction and Irma is one of the strongest hurricanes ever. North Korea continues to test missiles and Putin is supporting them.
Swing traders should wait for the pullback. The farther we drop the more aggressive you can get on the bounce.
Yesterday we got a nice drop and an instant bounce. If you held puts overnight you will take some heat this morning. I am watching for late day selling with follow through the next morning. I also want to see technical support levels fail. This could all happen quickly and I plan to day trade from the short side when I see it.
The market rally this morning looks good, but I don’t trust. ISM services will be posted after the open and that could fuel a small rally. I’m expecting a good number. Once that momentum stalls I will be watching for a possible reversal.
Day traders can use SPY $246 as a guideline. If we are above it, go long. If we are below it, go short. Trading volume should improve each day.
Resistance is at SPY $248.
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