Market Bid Is Strong – Perfect Conditions For This Options Trading Strategy

Posted 9:30 AM ET - Yesterday the market surged to a new all-time high on news that the spread of Coronavirus was starting to taper. Dovish congressional testimony from Fed Chairman Powell also provided a nice tailwind. Stocks gradually drifted lower during the day, but they still finished at a new all-time high. This price action is a reminder that profit takers will keep a lid on the market if it gets over-extended. The S&P 500 is up 14 points before the open today. The growth rate of the Coronavirus decreased for the third straight day. Chinese workers are back on the job and this is calming investor nerves. Yesterday's statements from Jerome Powell suggest that the Fed is content with its current policy and with current economic growth rates. They are closely monitoring the impact of the Coronavirus and they will ease if necessary. There will be more “Fed speak” today. Central banks remain dovish and this is providing a safety net for the market. Historically low interest rates are pushing investors into equities. Bond yields do not keep pace with inflation and fixed income investors are generating negative real rates of return. Corporations are also taking advantage of this low interest rate environment. They are issuing cheap debt and using the proceeds to repurchase shares. This explains the Fed "safety net" I was referring to and it is an incredibly powerful force. Domestic economic releases have been excellent (ISM manufacturing, ISM services, ADP and the Unemployment Report). This is a very light week for economic news. Earnings season is winding down. The results were excellent and the market still has a little gas left in the tank. At a forward P/E of 18 we can expect profit-taking when the market rips higher. I believe that we will see a fairly tight trading range the next two months while stocks grow into their current valuations. Swing traders should focus on bullish put spreads. I know I sound like a broken record, but this strategy has been perfect for this environment. A gradual market rally provides us with a small tailwind and Option Stalker helps us find stocks with relative strength and heavy volume. I'm looking for post earnings plays where the stock has strong technical support close by. We are selling these bullish put spreads below that support level and time decay is working its magic. In last week's swing trading video I highlighted eight bullish put spreads. All of them are in great shape and I will try to repeat that performance tonight when I release this week's video. Day traders need to tread cautiously on the open. Yesterday we saw that there are profit takers. I am expecting a mix of green and red candles on the open suggesting that buyers will be tested early. If we see consecutive long red candles closing on their low - the opening gap will start to fill. The market had an opportunity to test the bid yesterday and this morning's snapback rally suggests that buyers are still engaged. I believe we will see flat trading and a compression early. After an hour we will try to grind higher. We have been able to find the stocks early and make excellent money in the chat room. If we do not have consecutive red candles on the open, buy strong stocks. I did notice that Microsoft, Facebook, Apple and Google were fairly soft yesterday. These tech giants have an incredible impact on the market and I suggest keeping an eye on them. It will be tough for the market to move higher if they are not leading the charge. Look for two-sided price action today. Resistance is at SPY $337 and we should test it right out of the gate this morning. Support is at $334.80. I will post this week's swing trading video tonight - watch for it. . .

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