Posted by Pete Stolcers on August 9
Posted 9:00 AM ET – Yesterday the market made a new intraday high and there wasn’t a catalyst to fuel the rally. Momentum alone won’t push us through. North Korea was not the reason stocks reversed. This is simply a convenient excuse.
Every military powerhouse (US, China, Russia and Japan) has its satellites pointed at the country. Any conflict would disrupt commerce and China will NOT stand for it. They know that as long as their economy continues to grow they can avoid public unrest. The Chinese Communists are making a lot of money and they want to retain their power. Any aggressive move by North Korea will be squashed like a bug. This is not going to escalate and the market knows it. The rhetoric on both sides is meaningless.
The market tried to make a new all-time high on light volume and the move lacked substance. Bullish speculators were lured in and the door got slammed in their face. We’ve seen profit-taking off of the all-time high a number of times recently.
Earnings season is winding down and the cycle is “front-loaded”. I mentioned in my comments yesterday that the strongest companies report early. Good news is priced in and the excitement will wane. Retailers will weigh on the market. Most of the overnight releases were negative.
DC is in recess and investors get nervous when the country is on autopilot. The Fed is going to reduce its balance sheet in September and a rate hike is likely in December. Congress will have the debt ceiling hanging over their head when they return and there hasn’t been any progress on health care reform or tax reform.
Swing traders need to keep their powder dry. I liked Apple early in the day and I made money buying calls. If I would’ve held the position overnight I would’ve lost money. This is a low probability swing trading environment.
Day traders need to trim their size and activity. I will be active today since the market will open lower. I want the wind at my back and the trend is still up. There was an excellent buying opportunity on the open yesterday and I was fairly active. Today I will let the market come in and I will watch for support at SPY $246. We are in a news vacuum and I will be less active when the market opens flat. If the market gaps up I will barely trade.
Look for brisk selling early in the day. Bullish speculators will get flushed out and the market will recover the rest of the week. As we get closer to September, my bias will take on a more bearish tone.
Rumors and headlines will circulate during the next few weeks. The next story could point to problems in Venezuela, North Korea, Iran, Russia or Syria. The headline could be about a potential credit crisis or trouble in the White House. Beware of the crisis du jour fabricated by the media. Know that there is natural selling after a nice run. Also know that higher interest rates and the debt ceiling will weigh on the market while DC is in recess.
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