Don’t Buy Puts Yet – Market Drop Was On Light Volume – 30 AM ET – Stay In Cash

Posted 9:30 AM ET - Yesterday the market plunged after a big round of earnings releases. Google did not spark buying and mega cap tech stocks have traditionally led the charge. Facebook faces possible regulation and it will post results after the close. Smart phone suppliers have been warning and Apple has been weak. The S&P 500 and the NASDAQ 100 were both below critical support (100-day moving average) and once the selling started Tuesday buyers pulled bids. The S&P 500 is likely to test the 200-day MA this week. Yesterday President Trump said that Mexico needs to secure their side of the board before he signs a NAFTA agreement. The market does not like trade restrictions of any sort. This news added to the selling pressure. Major industrials like MMM and CAT dropped after reporting earnings. Stock valuations are at the high-end of the range and earnings releases have to be perfect for the stocks to tread water. One third of the S&P 500 will report this week. TXN was one of the first semiconductor companies to report and the stock is up after the announcement this morning. Facebook will post results after the close today and Amazon will report after the close tomorrow. Economic growth has been solid globally. Interest rates are creeping higher and the FOMC will meet a week from today. They plan to hike rates two times this year and that path is dovish. A 3% 10-year yield is low by historical standards. The political news is settling down. Syrian airstrikes were a success and North Korea wants to negotiate. Trump is sending a delegation to China to negotiate a trade deal and that is a positive sign. It is tempting to jump on the bearish bandwagon, but I'm not ready to do that. Earnings season has been very bullish every quarter for the last nine years and I am not going to short the market when the announcements are just starting to crank up. The volume yesterday was very light relative to the last two declines that challenged the 200-day moving average. This tells me that buyers are pulling bids and they are passive. Heavy volume yesterday would have been a sign that Asset Managers are reducing risk and we did not see that. VIX is the fear index and it has been declining since February. It won't take much for the market to spring back to life. If the FOMC hints that there will only be two rate hikes the rest of the year the market will rebound. Inflation has been contained and the Fed has breathing room. If Trump signs a trade deal with China the market will scream higher. Swing traders need to remain on the sidelines. The QQQ opened above the 100-Day MA yesterday. We could have seen a big rally after GOOG earnings. Instead, we had a reversal and once the selling momentum was established buyers pulled bids. This is a low probability trading environment for swing traders. Once earnings season passes the dust will settle and we will have a clear sense of direction. As I mentioned earlier, one or two news events could spark a big round of buying or a big round of selling. I expect the 200-day moving average to be challenged this week and it could happen today. Day traders are in the sweet spot. Intraday volatility has been incredible and once the momentum is established you just need to stick with the trend. I've been mentioning in my comments to use the first hour range as your guide. Once the market was below that low you should have stayed on the short side. Yesterday was one of the best days we've had in the Option Stalker chat room. Look for early weakness today. I believe the 200-day moving average will be tested early. If the market does not spend much time at that level we could see a nice bounce. This has to happen in the first three hours of trading. That will give the market plenty of time to reverse and recover. If the 200-day moving average fails (SPY $270) and we see steady selling, stick with the short side. Most of the S&P 500 will be reporting in the next week and profits will determine where we go the summer. . .

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