Market Could Go Either Way – We Are Right In the Middle – Keep It Small

Wednesday night I am going to host a webinar. I will find 5 stocks that are great for option buying. CLICK HERE TO REGISTER Posted 10:14 AM ET - Yesterday the market gapped higher on dovish central bank statements. Once the momentum was established, it continued to grind higher. I mentioned in Monday's comments not these one-day moves have no follow-through. This morning, the S&P 500 is down 11 points before the open. This is a low probability trading environment and you should keep your size small. I am trying to sit on my hands so that I don't do something stupid. If you feel compelled to trade, sell some out of the money put credit spreads and use SPY $205.70 as your stop. The jobs report will be released Friday and the market will be closed. Analysts are expecting 245,000 new jobs and anything close could reignite tightening fears. Personally, I feel that February's number will be revised downward and bad news could be good news. The price action during the last few weeks has been random and the market lacks direction. It is trapped in a trading range and we are right in the middle of it. Prices could swing either way so I'm in cash. Earnings season will start next week and that is typically bullish for the market. Intel has already warned so it won't spook the market when it misses. Once the early excitement wears off, I believe Q1 earnings will weigh on the market. Profits in Q4 were down 3% versus a 2.8% increase in Q3. This is the worst decline since 2011 and it will get worse. Low oil prices will hurt profits in the energy sector. Minimum wage increases in 21 states will impact retail and restaurant. Horrible weather conditions this winter will also impact retail, restaurants and construction. Multi-nationals will be hurt by the strong dollar. Global economic conditions are soft. China warned that it won't hit its 7% growth target and most analysts believe the Japan will grow at a 1.5% clip in Q2. Europe is improving but their growth is somewhere in the 1% range. Our GDP came in at 2.2% and that is far from robust. The real issue is that central banks have pulled out all of the stops. They have been printing money at an unprecedented level and it is not stimulating economic growth. Money printing is propping up the market because interest rates are at historical lows and money is flowing into equities due to a lack of attractive investment alternatives. Central banks can't stop the next economic downturn. They are out of bullets and we will be forced to go through a natural cycle. As that happens, credit concerns will surface. The scenario I've outlined could take months to unfold. Economic conditions will slip and central banks will try to come up with new stimulus. Eventually, major moving averages will be broken and the long awaited correction will begin. Until the market closes below the 200-day moving average consistently, we have to assume that every decline is a buying opportunity. Even when the market rolls over, remember that five-year bull runs die hard. Shorts can expect nasty snapback rallies during the decline. My intent is not to scare you, it is to prepare you. I'm not going to pick a market top; I will wait for technical damage. I don't plan on trading much the rest of the week. The price action will be choppy and the biggest news release of the week will come when the market is closed. The SPY is right in the middle of its trading range and it could swing either way. Keep your size small. . .

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