Big Market Breakout Possible Next Week – Greece the FOMC and Options Exp – Potential Catalysts

Today's Options Trading Strategy - If the market can breakout and hold the breakout, I will start buying call options. I will use that breakout as my stop. I will also sell out of the money bullish put spreads. Given my concerns, I will keep my size relative small. I realize that money has to go somewhere and US equities are attractive relative to fixed income. Until then, I will continue to day trade. Yesterday I bought the breakout above the one hour high. I told you that my target was SPY $206.50. That strategy netted me 10 S&P points. I made $500 per contract ($3000 margin requirement) and that was a 16% gain in one day. I have been participating in these moves every day and I don't see the benefit of overnight trades. We need to get out of this range and establish a sustained directional move. Once we have that, I will start buying options. I will not be trading the short side today. If the market makes a new high after one hour of trading, I will buy the futures and I will use that high as my stop. If the S&P falls below the one hour low, I will stay on the sidelines. If the market rallies back above that one hour low, I will get long and I will use that as my stop. I believe that any dip will attract buyers. I do not want to trade against the momentum. Posted 10:30 AM ET - The market has staged an impressive rally off of the 100-day moving average during the last 10 days and we are challenging the all-time high. This has been a light volume rally and I still can't fully embrace it. There are a few major speed bumps that will be navigated next week. Greece has been grabbing all of the headlines. I won't get into the details, but I will say that conditions are fragile. Both sides are playing "chicken" ahead of a much-needed loan. This reminds me of our debt ceiling debacle where both sides dug their heels in until the last second. The market has priced in a deal. Even if terms are reached, this dark cloud will continue to weigh on the market all year. The Fed will meet next week and the strong January jobs number has many traders believing that the tightening timetable will move forward. I believe we will see nervous trading ahead of the statement and the comments will remain dovish. The FOMC statement coincides with option expiration and we have seen some explosive moves when this has happened before. Given that we are close to the all-time high, I believe there is more pain on the upside. Traders that sold out of the money calls above the all-time high will be trying to reel them in if we breakout (short squeeze). Resistance at the all-time high will be formidable. We should see nervous trading ahead of these two events next week. If Greece comes to terms and the Fed remains dovish, we could see a big breakout. I'm having a hard time embracing this rally. I still feel that global economic conditions are fragile. China has been slipping at a steady pace and this is a longer-term concern. Domestic economic activity is decent, but it is not robust. The government's jobs report (which I don't trust) and ISM services were good last week. The rest of the economic releases (durable goods, GDP, ISM manufacturing and ADP) missed estimates. The gasoline reprieve has not stimulated consumption. Gasoline prices are jumping and that relief could be ending. Earnings season has been excellent, but guidance is cautious. The strong dollar will have consequences (earnings and exports). As a trader, I have to see both sides of the market and I am trying to remain objective. The market will try to grind higher today. Major resistance is close and I don't believe we will see a big move today (10 S&P points at most). Greece and the FOMC should keep a lid on this rally. . .

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