Market Rally Will End Soon – Next Move Is Down – Take Profits On Longs

Posted 9:00 AM ET - Last week the market sold off and tension in North Korea was blamed for the drop. In reality, bullish sentiment had gotten too high and speculators needed to be flushed out. Buyers pulled bids and the downward momentum accelerated as traders hit the exits. As I've been mentioning these one-day events tend to reverse quickly. Stocks found their footing Friday and the market rebounded yesterday. We are seeing follow-through this morning. Earnings season is almost over and the economic news is light. The FOMC minutes will be released tomorrow afternoon and we can expect hawkish comments. Investors get nervous when the Fed and politicians are away. Higher interest rates and the debt ceiling will weigh on the market in coming weeks. Aggressive swing traders had an opportunity to sell out of the money bullish put spreads Monday. That window has closed and you should have kept your size fairly small. This strategy allows you to distance yourself from the action and to take advantage of time decay. Day traders needed to jump on the rally early yesterday. After 90 minutes of trading the move was over and stocks stalled. The SPY rallied above resistance and $246 is now support. The QQQ is also above a key support level at $143. Look for an opportunity to get long this morning and use those two price levels as your guide. If the market is above the first hour high you can get a little more aggressive with your longs. The action is likely to die down ahead of the FOMC minutes. This rally should last another week and the next decline is likely to challenge the 100-day moving average. Set passive targets on your long positions. The next sustained move is down. We have to wait for signs of weakness before we buy puts. . .

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