Take Profits On Shorts – No Follow Through Selling – Bid Is Growing

Posted 9:30 AM ET - The market has been able to regain its footing after a dose of profit-taking last week. I still believe that the SPY will challenge the 100-day moving average, but I'm taking profits on my overnight short positions this morning. Trading against a longer-term uptrend is difficult. Short covering rallies can be violent especially in this “no news” environment. Buyers waited patiently to see if there was follow-through selling. In the absence of additional profit taking the last few days the bid has grown stronger. The selling pressure will intensify as we get closer to the September FOMC meeting. The Fed will reduce its balance sheet and it will prepare the market for a December rate hike. A couple of weeks later we will hit the debt ceiling and politicians will wait until the last second to get a deal done. Swing traders who bought puts need to take profits this morning. I don't like getting shaken out of a position, but I don't want to lose money trading against a longer-term trend. If we get a nice bounce, I will re-enter near the all-time high. Day traders should use SPY $243.80 as a guideline. If we are above it, focus on the long side. If we are below it focus on the short side. Also use the first hour range as your guide. We are still in the summer doldrums and the action has been light. Stocks will open higher and we could see them grind the rest of the day. Late day selling would be a warning sign. . .

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