1-Day Market Drop Likely Next Week – Good Time To Roll Your Calls

Posted 9:30 AM ET - The market is floating higher on low volume. Daily trading ranges are compressed while we wait for a catalyst. Earnings season begins next week and that should attract buyers. ADP was a little light yesterday (135,000) but initial jobless claims have been declining the last few weeks. That bodes well for tomorrow's jobs report and we should see a number above 150K. The last release came after a holiday and I am expecting an upward revision for August. Regardless, I don't believe a soft number will spoil this rally. China's PMI was strong and domestic releases were also good. ISM manufacturing and ISM services were excellent. A nickel and dime rally like we've seen could be vulnerable to a one-day drop. This would flush out bullish speculators. The bid is strong and any decline will be brief and shallow. We need to weather small pullbacks. The snapback rally will push us to new highs and that could be the "meat" of the final move this year. Earnings were excellent last quarter and the guidance has not been this strong in five years. I don't believe the tax deal will get done this year. It could get done piecemeal, but a drawn out process won't spark a massive year-end rally (but a comprehensive tax cut for individuals and corporations would). Swing traders should stay long calls. Use SPY $250 as a stop on a closing basis. Stocks should rally until Apple posts results. When I told you to get long two weeks ago I mentioned buying November calls. Time decay is an issue for options expiring in October. If you are long October calls, I suggest selling into strength and taking profits. Wait for a dip next week and roll into November or December calls. Day traders need to be very cautious. I am making most of my money with overnight swing trades. Intraday ranges are very compressed and stocks have little follow-through. The opening rally has faded most days so wait for that dip today. Stay long. . .

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