Posted by Pete Stolcers on August 10

Posted 9:20 AM ET – I don’t have anything new to add. North Korea is grabbing the headlines, but the market is simply tired after a nice run. DC and the Fed are on vacation and that makes investors nervous. Tightening in September and the debt ceiling will weigh on stocks. Retail earnings will not excite.

Support at SPY $246 will be tested and we need to close above it. A breakdown would be mildly bearish.

The market tried to make a new all-time high on light volume Tuesday 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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