We Have Been Taking Profits All Week – Stay In Cash Until We Get the Market Pullback

Posted 9:30 AM ET - During the last four days the market has closed higher than the open resulting in green candles. The bid has been tested early in the day and buyers are still engaged. We will lean on this pattern for our day trades. Unfortunately, the trading volume is light and so is the level of conviction. Asset Managers are not chasing stocks when they are trading at the upper end of their valuation range. They are not worried that they will miss a year-end rally. We are currently in a news vacuum and that favors the upward momentum. The market lacks a catalyst. A trade truce with China is priced in and a "mini deal" won’t have much of an economic impact. Trump says that he does not want to retract tariffs to the degree that China would like. This could delay/derail an agreement and it would spark selling. I believe that any trade surprise favors the downside. Fed Chairman Powell testified before Congress yesterday and he did not shed any new light on policy. He will testify today and the Fed will not cut rates again this year. China's industrial production (4.7% versus 5.4% expected) and retail sales (7.2% versus 7.8% expected) were softer than expected. Europe's Q3 GDP was slightly better than expected (1.2% versus 1.1% expected). It's important to note that Q3 GDP grew .1% in Japan and in Germany. They are the third and fourth largest economies in the world respectively. Earnings season has been good and three quarters of the S&P 500 exceeded earnings estimates. Cisco missed and the stock is down 5% overnight. I don't see any speed bumps ahead but I suspect that we will see an "ugly day" soon. It won't take much to flush bullish speculators out of positions and we will be ready to sell bullish put spreads on strong stocks when it happens. Swing traders should have sold the half position of SPY yesterday on the close and we made a little over four dollars. You should also be buying back your bullish put spreads for pennies. We want to be in cash. We've done well with our bullish put spreads over the course of the last two months and it's time to protect profits. Option implied volatilities are extremely low and it doesn't make sense to sell spreads right now. You have to go to close to the money to get a decent credit. Last night I published my weekly swing trading video in Option Stalker. I highlighted bullish put spreads and bearish call spreads. For every two bullish put spreads I would sell one bearish call spread. Make sure you do this on different stocks. I am not a fan of iron condors. Option Stalker helps us find relative strength and relative weakness and we have a directional opinion on the stock. For bullish put spreads I'm looking for stocks that have just rallied above major moving averages or horizontal resistance on good volume. I am selling the bullish put spreads below that support on the notion that the upward momentum will continue. This is a time to keep your powder dry. We can't get aggressive until we have that market pullback. Day traders should look for heavy volume and relative strength early in the day. Once the market finds support buy these stocks. Option Stalker searches like Heavy Buying, 4 Bar Breakout and Relative Strength 30 have been excellent. Set passive targets and try to make your money early in the day. Yesterday we did have some nice movement and there were opportunities on both sides. I hope we see similar today. We need the intraday ranges to expand. The hardest thing for traders to do is to stay sidelined. Be patient - you will be rewarded. . .

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