October 23, 2019
Posted 9:30 AM ET - The market continues to look for a driver and the SPY closed right where it started a week ago. Trading volume has been anemic and the level of conviction is low. Yesterday we were going to carry some overnight positions if the SPY closed above $300. The news did not pan out and we did not buy calls. Selling out of the money bullish put spreads on strong stocks is the best strategy given the current market conditions. Boris Johnson's Brexit plan won approval by Parliament, but not his fast track timetable. The margin of victory was narrow and he wants to "seal the deal" while he has the votes. He has asked the EU not to grant an extension from October 31st to January 31st. If the extension is granted he will try to call a vote. That outcome could go either way. If he wins he will be able to force Brexit and if he loses he will be replaced and we will be back to square one. It is possible that the EU will grant a shorter-term extension that gives Parliament an extra couple of weeks to review the agreement. This is the first time that Parliament has been able to agree to a Brexit deal and I view that as a positive development. If the fast-track timeline was approved the market would have rallied and I wanted to jump on that move. The overnight momentum would've continued today and the market could have rallied through the all-time high. We were prepared to buy calls and it didn't happen. The rhetoric between the US and China has been positive. China has followed through on its good faith promises and by increasing their grain purchases. A mini-deal could be signed in November and that would be market friendly. The FOMC statement will be released in a week and traders will be looking for dovish remarks. This should keep buyers engaged. Earnings season has gone well and Microsoft will report after the close today. Twitter will report before the open tomorrow and Amazon and Intel will report after the close. Texas Instruments is down 10% after providing soft guidance. So far the overall earnings results have been better than feared. Flash PMI's will be reported tomorrow and I'm expecting to see weakness in Europe. Swing traders should continue to sell out of the money bullish put spreads on strong stocks. Option Stalker tracks price-performance after earnings releases and those are prime candidates for selling out of the money bullish put spreads. I like setting the short strike price at the opening from the earnings announcement. The stock needs to maintain that support level and ideally it has strength relative to the S&P 500. Option Stalker also has a search that identify stocks that have rallied 2 weeks ahead of earnings more than 75% of the time in the last three years. If it has major technical support just below the current stock price and if the stock has relative strength is a prime candidate for selling out of the money bullish put spreads. Make sure that the options expire before the earnings announcement. This strategy is relatively passive and we can't get more aggressive until we have a market pullback. While we wait, bullish put spreads will allow us to distance ourselves from the action and to generate income. Day traders also need to focus on earnings announcements. I like using the Bullish After Earnings search right out of the gate. During the day I used Heavy Volume M15 (15 minute basis) with liquid options, relative weakness M15 and a sell signal M15 to find FB and V. Those turned out to be excellent shorts. The market has been quiet and it's important to use heavy volume as a variable and all of your searches. Look for another choppy trading session. The volume should pick up with major companies on deck to report. Support is at SPY $297 and resistance is at $300.50. I am expecting a slightly bullish bias into the FOMC statement next week. Resistance at the all-time high is stiff and the light volume signals a lack of conviction. . .
Daily Bulletin Continues...
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