The Market Is Addicted to Easy Money and It Is Going To Get A “Fix”

December 16, 2020
Author: Peter Stolcers, Founder of OneOption

Posted 9:30 AM ET - There's nothing like easy money to get investors excited. Politicians are closer to a scaled down stimulus bill and the FOMC statement today will be dovish. Asset Managers are riding out this rough patch on the notion that vaccinations in Q1 will lead to an economic recovery. The S&P 500 is within striking distance of the all-time high and we are likely to test it today. The incremental overnight news is light. Politicians are trying to pass a $730 billion stimulus bill that has removed some of the "sticky parts". They also need to pass a budget resolution very quickly to avoid a government shutdown. In typical fashion, this will come down to the wire. Retail sales were down 1.1% and that was in line with expectations. There is not any news on the Brexit front and this could be a potential speedbump. A hard exit could lead to currency fluctuations and commerce disruptions. The Senate run-off in Georgia is another potential speedbump in four weeks. Stocks are trading at a P/E of 40 and they are rich. The market could tread water while profits catch up or it could pull back to a lower level and then gradually rally back in Q1. My market bias is neutral to slightly bullish. Swing traders should continue to sell out of the money bullish put spreads sparingly. This Friday we will have 6 spreads expire worthless (max profit) and that will reduce our risk. We do have one problem position in BABA and we are trying to buy back that spread for two dollars. This one position could strip away for winners and it is a reminder that we need to be cautious. The stock dropped $8 overnight when it was fined $76,000 by the Chinese government. I will be looking to add a couple of positions in my weekly swing trading video tonight. Seasonal strength will provide support through year-end, but I'm not sure where we go from there. The market pullback this week found instant support and without a stimulus bill we would have probed lower. Day traders should focus on bullish trades early. Look for stocks with relative strength and heavy volume as always. Expect resistance at the all-time high to hold until the FOMC statement this afternoon. The market lacks a catalyst (until an actual stimulus bill is signed) and I'm expecting dull trading in the middle of the day. Quadruple witching could fuel a market breakout this week as call sellers at the all-time high are forced to buy back those calls. With each passing day we can expect lighter volume. This is a good time to trim your size and trading activity. Support is at SPY $364 and resistance is at the all-time high. . . image

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