Market Will Drop To SPY $237 This Week – Nervous Trading Ahead of Fed

Posted 9:30 AM ET - Last week the market shot higher after Trump's Joint Congressional Statement. The S&P gapped higher and this is the type of blow-off top I've been watching for. Stocks declined towards the close that day and they sold off the following day. This reversal marks a temporary market top. In recent weeks Fed officials have made hawkish remarks. Analysts feel that a rate hike next week is likely (80% chance). This will be the second rate hike in three months and we have only seen two rate hikes in the last three years. Investors will be spooked ahead of the FOMC meeting. ISM manufacturing and ISM services were both above 57 last week. These are extremely strong readings and economic growth (domestic and international) is improving. The market should be able to shoulder this rate hike, but that doesn't mean that it will be smooth sailing. On Friday we will get the Unemployment Report and it needs to be above 250,000. If not, investors will worry that the Fed is too aggressive. At very least I'm expecting the gap from last Wednesday to be filled. If support at spy $237 fails we could see additional profit-taking. Swing traders should have locked in profits on call positions. In my Option Chat Room we exited all of our call positions last week. Today we will buy a few puts. The trend still points higher so we will use a tight stop and we will have a passive target. Less aggressive traders should patiently wait on the sidelines. Ultimately any market decline will be a buying opportunity. Day traders should wait out the first 30 minutes today. Let the market settle down and try to get a feel for direction. The intraday price action has been as flat as a pancake. The market makes its opening move and then it sits in a tight range. I am looking for opportunities on both sides, but I'm keeping my size small. I will also be looking to short the S&P futures intraday if we are below the low from Friday. This week we will learn if the market decline is merely a retest of the breakout or if there is substantial profit-taking at this level. The price action will be very choppy into the FOMC statement. Look for a retest of SPY $237 this week. It might even happen today. . .

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