Stimulus Hopes Will Attract Buyers Today – Day Trade From the Long Side

December 15, 2020
Author: Peter Stolcers, Founder of OneOption

Posted 9:55 AM ET - Yesterday the S&P 500 surged higher on M&A news and those gains evaporated during the day. Support at SPY $364 was tested and that is the upward sloping trend line that started on November 6th. The headwinds are blowing and I still believe that we will have sideways action the rest of the week. The S&P 500 is moving higher this morning on news that the "sticky" part of the $900 billion stimulus deal will be removed and that bipartisan approval is expected for $730 billion. The market is addicted to easy money, but it's important to note that this is considerably less than the $2.5 trillion that was discussed before the election. Both parties also need to agree on a budget resolution to avoid a government shutdown before Christmas. Economic data points have been steady and the economy is not falling off of a cliff and $730 billion would help a lot. Remember, this is the size of the stimulus bill during the 2009 financial crash - this is a lot of money. Furloughed workers and small businesses need the aid as states shut down. The jobs numbers reflect deteriorating employment conditions. The FOMC statement tomorrow will be dovish. Fed officials have done all they can and it's time for government stimulus. The statement should be fairly neutral, but a reaffirmation of loose monetary policy could spark a little buying. There was not any overnight news on the Brexit front and that clock is winding down. At a P/E of 40, great news is priced in. Investors have been riding out this economic rough patch and they are focused on a recovery in Q1 as vaccinations curb the spread of the virus. Swing traders should manage profits on bullish put spreads. Time decay is working in our favor and we have cushion on our trades. I don't plan on adding many new spreads at this time and I still feel that another probe for market support is likely. I want to see a nice hard selloff and a nice bounce. To this point we have seen tiny rounds of profit-taking and the bid is not been truly challenged. Day traders should be cautious on the open. Yesterday's gap higher was reversed. I believe that buyers will have better control today given the stimulus news. If the market makes a new high after two hours of trading, favor the long side. If the market makes a new low after two-year hours of trading, favor the short side. We are likely to stay within yesterday's range and I expect to see two-sided trading. The bid should be a little bit stronger today and I prefer to trade from the long side. I'll be looking for heavy volume and relative strength as always and Option Stalker searches will help me find it. Trading volume will start to decline as we get closer to year-end. Reduce your trade size and trade count. Support is at the low from yesterday and resistance is at the high from yesterday. Watch for an “inside day” (high and low from prior day are not breached). . . image

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