Market Stuck In A Range – Any Surprise Favors the Downside

Posted 9:00 AM ET - The market is compressing near its all-time high. Trading volume has been declining and we are in a news vacuum. The action is likely to be dull for the next two weeks. China's industrial production and retail sales were slightly below estimates. The PBOC made dovish comments and that softened the blow. I believe the Fed will hike in June. They cited improving growth in Q2 and they like to hike when market conditions are strong. Earnings season has been good and guidance has also been bullish. Announcements are tapering off. Healthcare reform is stuck in the mud. The bill will get volleyed between the House and Senate this summer. Investors will grow impatient while tax reform sits on the back burner. Higher interest rates, a delay in tax cuts and a moderation in economic growth could spark profit-taking. I believe the market will retrace to the 100-day moving average in the next month and it will fill in some of the recent gaps. Swing traders can buy overnight puts if the SPY closes below $238. Stop the trade out if the market closes above $241 and set a target at the 100-day moving average. Don't be early. We need to make sure that technical support has been breached. I suggest taking a small position (half of your normal size or less). Passive traders should stay in cash and wait for the dip. Once support is established there'll be an excellent opportunity to sell out of the money bullish put spreads. Day traders should use SPY $239 as a guide. If we are above it, trade from the long side and favorite tech stocks. If we are below it trade from the short side. I will not be trading the first hour of the day. I need to get a feel for market direction. In this environment most trading days will be range bound. The market will chop from one extreme to the other. Trim your size and set passive targets. Oil prices are firming up this morning after Russia and Saudi Arabia agreed to production cuts. This will be a nice opportunity to sell out of the money bullish put spreads on energy stocks. The likelihood of a rally is higher when oil is up and bank stocks are strong. Keep an eye on these two sectors today. . .

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