Sell Bullish Put Spreads – Market Bid Is Strong – So Are the Headwinds

Posted 9:30 AM ET - Yesterday the market reversed after testing the breakout at SPY $294. Based on the opening this morning we will erase the losses for the week. The market is searching for direction and it lacks a “driver”. The overnight news has a bullish bias and the reversal yesterday is providing a tailwind. US/China trade negotiations have improved slightly and a face-to-face meeting will happen in October. Huawei said it will consider licensing its 5G technology to US firms to avoid security issues. This is a pretty substantial development. A preliminary trade agreement between the US and Japan has been reached. This is a very positive development. It does not include automobiles, but Trump promised not to impose national security tariffs. Central banks around the world have been easing and bond yields are at historic lows. The Fed is less dovish than investors would like, but it is ready to cut rates if needed. This market safety net will keep buyers engaged. Earnings season will begin in two weeks and that typically attracts buyers. Tech stocks have been soft recently and there are some attractive opportunities in the sector. At a forward P/E of 17 stocks are priced for good news. A hard exit for England in October is very unlikely and this uncertainty has temporarily passed. European economic conditions are dire, but domestic activity has been stable. As long as that weakness remains overseas the market will tread water. I am fairly bullish, but I was hoping for more than a one-day drop. The market briefly tested the SPY $294 breakout yesterday morning and it immediately bounced. Swing traders can sell out of the money bullish put spreads as long as we are above SPY $294. Focus on stocks with relative strength that are on a buy signal. Use these in your Option Stalker searches. Make sure that the short strike price is below technical support on the stock. If that support is breached, buy back the spread. I believe the market will try to grind higher the rest of the week and my bias is neutral to slightly bullish. I still feel that we will be trapped in a trading range. Day traders should evaluate the early action. We are likely to stay inside of Tuesday's range. Support is at SPY $295 and resistance is at $300. There is also a minor support level at SPY $297. The first hour range will be critical. If we stay in it for a couple of hours the action could be very dull. My suspicion is that the market will try both directions today and finish near the open. The market bid is fairly strong and saw that yesterday. This is a good time to sell bullish put spreads. . .

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