Buy Puts If the SPY 200-Day MA Fails – Hold Them If We Close Below It

Posted 10:30 AM ET - Yesterday, the market probed for support and it stopped just short of the 200-day moving average. The price action has been very soft this week and I don't believe buyers will step in until they see that support tested. The jobs report was in line with expectations (215 K). This was the last big piece of news and it did not generate much of a reaction. ISM manufacturing was weak and ISM services was strong. Economic activity is stable, but sluggish. The FOMC did not show its hand last week and any "Fed speak" will lack substance. They are headed into recess and they do not want to spook the market. I believe Tuesday will be pivotal. China is on everyone's radar and they post economic numbers (retail sales, foreign investment and industrial production) next week. If the numbers are weak, the market will fall below the 200-day moving average and we could see a nasty round of selling. If the numbers are better than feared, we could see a small relief rally above the 100-day moving average. Flash PMI's will be the next big number and the doldrums will set in if this scenario plays out. I am trading from the short side today. Buyers will pull bids heading into the weekend. They want to see if support holds and if others step in. If the 200-day moving average fails, buy puts. Hold them overnight if we close below the 200-day moving average. . .

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