December 31, 2019
Posted 9:30 AM ET - The market is going to finish the decade near the all-time high. At a forward P/E of 18, stocks are little stretched and we can expect profit-taking over the next few weeks. I am in cash with a small long position in VXX. I will patiently wait for a dip. China's manufacturing PMI grew for the second straight month (50.2). China’s Vice Premier Liu will come to Washington DC in the next few days to sign the Phase 1 deal. When politicians return in 2020, England will focus on Brexit. Boris Johnson's landslide victory will lead to an agreement before the January 31st deadline. USMCA will be finalized in the next week or two and it could add 1% to GDP growth next year. The Fed will remain accommodative through 2020 and that will be confirmed in Friday’s FOMC minutes. Yesterday I explained how low bond yields will provide a safety net for the market. Market volatility will subside next year and I'm expecting a trading range during the next few months. This is a fairly light week for economic releases. Domestic economic growth will be a solid 2%+ in 2020. After a 29% rally this year, the market will need time to digest gains. Stock valuations are little stretched at a forward P/E of 18 and earnings season will start in a few weeks. Swing traders should have sold the SPY position last Friday when we hit our $324 target in after-hours trading. If you missed that opportunity you should have stopped out yesterday at SPY $322. Regardless of your exit, this was a nice trade and we rode the gradual rally into year-end. Our bullish put spreads made fantastic money the last four months of the year and we aggressively rolled those positions. If you followed my suggestion you are almost entirely in cash right now. I suggest buying a full position of VXX and placing a target of 18. We will hold this position without a stop. When the market does dip option premiums will expand and VXX will move higher. I am not looking for a massive market selloff. Bullish speculators will be flushed out and we will see a small round of profit-taking. My first target is SPY $316 and it could be reached very quickly. Given all of the positive influences that I've outlined, dips will be shallow and brief. The market will quickly regain its footing and it is likely to rally into earnings season. On that bounce, if profit-taking surfaces before we challenge the all-time high it will be a sign that the next wave of selling will be more pronounced. This will take weeks to play out and there will be an opportunity to sell bullish put spreads in the next two weeks. Swing traders need to be very patient. Day traders should favor the short side. We've seen selling the last two days and stocks that have run hard will have nice intraday downward momentum. The last two days we've seen early selling, a nice bounce and selling late in the day. I believe this pattern could repeat again today. I am trading from the short side intraday, but I am not holding my short positions overnight. If you want overnight bearish exposure, buy the VXX and don't overstay your welcome (set passive targets and stick to them). The market narrowly avoided financial collapse a decade ago and it staged an unbelievable recovery. During that darkest moment I started building a state-of-the-art trading platform called Option Stalker. I must have been crazy. Much like the market, Option Stalker continues to soar and I can't wait to use all of its new features to find great trades during the next decade. Improvements for next year are already planned. This has been an incredible decade for 1Option members and I want to thank all of you for your continued support. We are just getting started. Wishing you and your family health, prosperity and happiness in 2020. Happy New Year! . .
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