Seasonal Strength and the Stimulus Bill Will Keep Profit Taking To A Minimum Thru 2020

December 23, 2020
Author: Peter Stolcers, Founder of OneOption

Posted 9:30 AM ET - The S&P 500 is up almost 10% this quarter and is within striking distance of the all-time high. Asset Managers would like it to sit right here to preserve healthy year-end bonuses. Seasonal strength and a $900 billion stimulus bill will keep profit taking to a minimum. Look for quiet trading and a small drift higher the rest of the year. From a trading standpoint, there are pockets of incredible strength. Cloud computing, solar energy and electric cars are in favor. Option Stalker has been able to find these stocks and they are presenting excellent day trading opportunities and in most cases very short-term overnight opportunities. In typical DC fashion, the stimulus bill is 5600 pages long and filled with "pork". The market doesn't care about that; it just wants the monetary system flooded with more money. In the final days of the year there could be a Brexit agreement. We've been here before so don't hold your breath. A hard exit would be a speedbump for currency markets and commerce. When traders return in 2021 they will be faced with a Senate runoff in Georgia. The market would like a Republican Senate so that the Trump tax cuts are preserved. At a P/E of 40 there are no bargains. Stocks are priced for perfection and any "snag" will spark profit-taking. Asset Managers are willing to ride out the bumps on the notion that they Q1 economic recovery will be swift once the majority of our population is vaccinated. Experts are cautioning that this will take time and that progress will be very gradual. Swing traders should have a handful of bullish put spreads on at this time and the majority of your account should be in cash. We have three spreads on right now and two of them will expire Thursday. Option implied volatilities are near historic lows and we have to go close to the money to get a decent credit. That means that we are taking on more risk and that any market whiff would instantly send stocks through our short strike price. Instead of looking for opportunities, we would be trying to manage losing positions. This is a great time to be on the sidelines and to wait for a market dip. Day traders should focus on strong stocks with heavy volume and relative strength. As I mentioned earlier, there are certain groups of stocks that have been particularly strong and Option Stalker searches have nailed them. The new HA searches also help us find the stocks and those will be your best candidates as trading volume dries up. Trim your trade count and reduce your size. Set passive targets during this low probability trading environment. Support is at SPY $362 and resistance is at $372. This is the last full trading session of the week. . . image

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