Buyers and Sellers Face Off – Market Volatility Will Settle Down – Sell Spreads

Posted 9:30 AM ET - Yesterday, the market opened in positive territory and it rallied the rest of the day. The SPY is back above the 200-Day MA and we are going to use that to our advantage. That did not feel like much of a capitulation, but buyers are back. The trading volume the last few days has been decent and that is a sign that both sides are active. This is a very poor environment for option buyers who want to swing trade. There is no follow-through and the overnight moves are a coin toss. Once the early momentum is established, the market continues to move in that direction. This is ideal for day trading. Watch the one hour range and if the market is above the high, day trade strong stocks. If the market is below the one hour low, look for weak stocks and short them intraday. Thanksgiving is approaching and volumes will decline. I believe the market will stay above the 200-day moving average this week. When we get back from Thanksgiving, everyone will be waiting for the jobs report (Dec 4th). A number above 200K will spark selling and a rate hike will be priced in. Then the market will fall into a tight range until the FOMC (Dec 16th). This sets us up for excellent opportunities to sell out of the money options spreads. As I mentioned in yesterday's comments, I don't like being short in November and December. I will focus on bullish put spreads. Retailers are posting results and they have been better than feared. The stocks are bouncing from deeply oversold levels. The news is dismal in most cases and I will be selling out of the money call spreads once the momentum stalls. There are crosscurrents and this is a low probability trading environment. I entered the week flat and my size is less than half of what I was trading a month ago. The FOMC minutes Wednesday should be hawkish and that could spook investors. I will hold off on selling put spreads until I see the reaction. Additionally, the 100-Day MA should provide resistance today and I don’t believe we will be able to close above it. Focus on day trading and use the one hour range as your guide. Sell out of the money put credit spreads on strong stocks after the FOMC minutes tomorrow and use the SPY 200-day MA as your stop. . .

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