Dead Till the Fed – Market Preparing For the FOMC – Quad Witch Will Fuel the Move

Posted 10:20 AM ET - Last week, the market probed for support and it touched the 100-day moving average briefly. Bullish speculators were flushed out and stocks are rebounding this morning. This has been a tough short and I mentioned that this was likely. I bought puts after the jobs number and I bought more Monday. I kept lowering my stops and I was taken out Thursday. I made a nice profit, but I felt that we still had work to do on the downside. In my comments Friday, I mentioned that I would buy put options on the SPY below $207 and I would use that as my stop. I bought puts and I was feeling pretty good about the trade throughout the day, but I was stopped out in the last 30 minutes of trading. That was a powerful surge and I'm glad I honored my stop. After a busy week of trading, I made money, but not enough to justify all of the activity. Five-year bull markets die hard. Every time a sell-off gains traction, you run the risk of getting blindsided by central banks. My bearish trades are much smaller than my bullish trades and this will continue until we can consistently close below the 200-Day moving average. The SPY has gained 3% since August. The five-year bull market is getting tired and resistance is building. The FOMC will release its statement Wednesday and every analyst believes that the word "patient" will be removed. The Fed is worried about the dollar rally and they will find a way to soften the blow. The jobs report was one data point and it was contrary to every other economic release. Conditions are fragile and the Fed does not want to raise rates. When the Fed does tighten (September?), the market will correct, but it won't crash. With interest rates near historic lows, money will flow into equities. Until credit concerns escalate, every decline will be a buying opportunity. China's Finance Minister said that they will be hard-pressed to hit their 7% growth target this year. However, he said that they have many "tools" to stimulate activity. If economic conditions deteriorate quickly it could start a wave of defaults in their shadow banking industry. China is the greatest threat to this rally. As long as they tread water, all is fine. I am on the sidelines. After the initial surge this morning, the price action should stall. Resistance at SPY $209 should hold. Traders will square up before the FOMC statement and the trading ranges will compress. Once the statement is released, we should see a huge move. Quadruple witching will add fuel to the fire. I will wait for the FOMC statement and when the dust settles, I will trade in the direction of the move. Resistance is heavy and so is support. Let's wait for a breakout or breakdown. . .

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