Buy Put Options If This Technical Support Level Is Breached Today

Posted 9:00 AM ET - Yesterday we saw profit-taking in the first hour of trading. Buyers pulled bids and we hit an air pocket. The S&P 500 was down 15 points and support at SPY $238 held. Once the lows were in, buyers nibbled and the market recovered most of its losses. This morning we are likely to challenge that support level again. Based on the price action yesterday we know that the bid is still solid. Another round of selling might soften it. If the SPY closes below $238 I will buy some July ATM puts and I will hold them over the weekend. Swing traders should only take half of the normal position. I'm not looking for a meltdown, just a retracement to the 100-day moving average. Plan on holding them until the FOMC and use $241 as your stop on a closing basis. Day traders should use SPY $239 as a guide. If we are below it favor the short side and if we are above it favor the long side. You can also use the first hour range as an indicator. If stocks continue to decline and we make a new low after two hours of trading I will get more aggressive with my shorts the rest of the day. Earnings season is winding down and retailers are reporting dismal results. Mega cap tech companies have reported and the excitement is waning. Banking and energy sectors are not picking up the slack. We know that Global Asset Managers have been allocating money to other parts of the world and US allocation is at a nine year low. US markets have seen a $22 billion outflow in the last six weeks. Political mudslinging continues and healthcare reform will drag on. This will postpone tax reform. Economic data points are solid, but not robust. China will post industrial production/retail sales/GDP on Monday. They have hit a soft patch and there is room for disappointment. The Fed acknowledges seasonal weakness, but they are focused on Q2 growth. They will take advantage of the recent market rally and hike in June. The closer we get to the FOMC meeting the more likely we are to see profit-taking. The S&P 500 needs to fill-in the gaps from 2 weeks ago. I am bearish but I will wait for technical damage and signs of weakness. A close below SPY $238 would be bearish and late day selling is also a warning sign. Support is at $236.50, $238 and $239. Resistance is at the all-time high. Treat you mom like a queen – she deserves it! . .

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