Market Momentum Will Slow – Sell Option Spreads and Trim Your Size

Posted 10:00 AM ET - Last week the market rallied and it was able to overcome hawkish FOMC statements. Traders are numb to the Fed's December lift-off threats and no one believes they will hike in 2015. The S&P 500 is one strong day from the all-time high. China's PMI came in at 49.8. That was slightly below expectations, but it will not spook investors. China's economy is relatively stable and their market is too. Domestic economic releases this week will be consistent with sluggish growth. Jobs in October should grow 200K and September's number will be revised upwards. Facebook will post results Wednesday after the close and that is the last of the mega-cap tech stocks. The excitement will wane as we enter the back half of Q3 earnings season. At a forward P/E of 17, stocks are not cheap. Earnings will be down this quarter year-over-year. I believe the market will trade between SPY $206 and $212 the rest of the year. I am selling out of the money bullish put spreads on strong stocks and out of the money bearish call spreads on weak stocks. This is a neutral strategy and I am distancing myself from the action. I want to take advantage of time decay. I am also day trading. There might be one nice push to the all-time high and I can catch it without taking any overnight risk. This market bounce from SPY $187 provided an excellent swing trading opportunity and I have taken profits on all of my calls. The headwinds will be stiff and we won't have the market working in our favor from this point on. Trim your size. A month ago the world was falling apart. I told you that in October most people would look back and wonder how they could've missed such an excellent buying opportunity. I hope you caught the rally. This is been an incredible trading year and I'm not going to give my profits back. Trim your size and sell out of the money options spreads. . .

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