Market Due For A “Nasty” Day – Weather the Storm and Stay Long

Posted 9:30 AM ET - Trading volume is extremely light and daily trading ranges are compressed. Thankfully, earnings season will begin Thursday and the action should pick up next week. Bullish speculators need to be shaken out before we can move higher and the probability of a "nasty" 1-day drop is high. The FOMC minutes will be released this afternoon and we can expect hawkish comments. Investors seem pretty comfortable with a December rate hike, but this news will have a bearish bias. When there is nothing else to trade off of, this could spark a round of selling. If you recall, the FOMC said that they could hike 4 times (3 expected) in 2018. Chase and Citigroup will post earnings tomorrow. Bank of America, PNC and Wells Fargo will post on Friday. Banks have rallied in recent weeks and we could see selling after the news. A tax deal feels distant and the mudslinging has reached new highs. Democrats have some leverage because the debt ceiling will have to be extended in December. North Korea could resume missile testing at any time. These events could spark profit-taking. None of them will spoil the long term rally, but they could flush bullish speculators out. The "nasty" day I referenced needs to be at least 20 S&P points. Anything less will not flush out bullish specs. When it happens, Asset Managers will pull bids and bullish speculators will fuel the downward momentum when they exit. Swing traders looking to buy longer-term calls will have an opportunity on this dip. If it does not come in the next few days, the probability will decrease. Swing traders who already own longer-term options can weather the storm. It will be brief and shallow. Day traders need to be very careful. The market has been making overnight moves and after the first 30 minutes of trading the action goes dead. I am making my money on swing trades these days. If the market breaks through the first hour range favor that side Once we start hearing from mega cap tech stocks (10/26) the chance for a market decline decreases. Know that a speed bump is likely in the next few days and that you will have to take a little heat. If you are looking for an opportunity to get long, this will be it. Don't hesitate when we get it because it won't last long. . .

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