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Posted by Pete Stolcers on July 11

Posted 9:30 AM ET – Yesterday the market saw follow-through buying after the bounce on Friday. Prices seem to be firming up ahead of earnings season. The next dip will be very telling. If it is brief and shallow it will be time to scale into long positions.

There is an old market adage, “the second mouse gets the cheese”. I don’t want to prematurely buy this bounce. The S&P 500 is in a small downtrend and tech stocks have taken a beating in the last few weeks. Major indices are hovering above support levels and I want to see those price points challenged once more.

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The news is fairly light this week. Janet Yellen will testify before Congress. I don’t believe we will hear anything new, but it will be a reminder that the Fed is hawkish.

Swing traders can sell out of the money put spreads on the SPY if it falls below $242 and it closes back above it. I would use $240 as the short strike price and a close below $242 as your stop. A dip and a bounce would be a sign that buyers have returned and that support at $240 will hold. Aggressive traders can buy calls on the QQQ if it falls below $138 and closes back above it. It has room to run and we can expect it to grind higher ahead of mega-cap tech earnings. Use a close below $138 as your stop.

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Day traders need to wait for support this morning. Once the downside has been tested and the SPY is above $242 you can trade from the long side. If the market sees a steady round of selling keep your powder dry. I would not get short at this time. I sense that buyers are lining up and that stocks will be scooped up on any decent.drop. With each passing day the bid will strengthen.

Once mega cap tech stocks have reported I feel that profit-taking will resurface. This will take a month to play out and August could get a little nasty.

Let the market come in and be ready to scale into long positions when we rise back above $242/$138.
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