January 5, 2021
Posted 9:30 AM ET - Yesterday the S&P 500 opened at a new all-time high and the selling started immediately. After three hours of trading the market had reversed 100 S&P 500 points and this is a clear sign of overhead resistance. Traders are preparing for the Georgia Senate runoff today. The market is pricing in at least one Republican victory. We know this because stocks have been able to tread water near their all-time high on the notion that the Trump tax cuts will be preserved. The New York Stock Exchange will not delist the three Chinese companies. This should bode well for Chinese stocks. China's economy is recovering quickly and these stocks have been in favor. Major economic releases are a week away. There is a Brexit deal and this dark cloud has parted. At a current P/E of 40, perfection is priced in. Bullish sentiment is extremely high and option implied volatilities (VIX) are extremely low indicating complacency. Swing traders should passively sell out of the money bullish put spreads. We are entirely in cash and we are searching for opportunities during this market dip. There is no hurry to buy stocks at this level. Asset Managers successfully marked their portfolios at the all-time high on December 31st and they will collect "fat" asset management fees. They no longer have an incentive to prop up the market at this level. We will closely be watching the upward sloping trend line that started in November on the S&P 500. Support at SPY $366 needs to hold this week and the Senate run-off results will be critical. Day traders need to be cautious on the open. Yesterday I warned you that we could see a gap reversal and that move gained traction instantly. Sell programs kicked in and bullish speculators were flushed out. I don't believe we will see a strong rally until the downside is tested this morning. Ideally, support will be established well above the low from yesterday and buyers will get a little more aggressive. I still prefer to trade from the long side. If we make a new low after two hours of trading and if we are below SPY $366, favor the short side. Support is at SPY $366 and resistance is at $375. . .
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