Dead Till the Fed – Buy A Few Puts If We Close Below SPY $212 Wed

November 1, 2016
Author: Peter Stolcers, Founder of OneOption

Posted 9:30 AM ET - The market is dangerously close to major support and as I mentioned yesterday, there are plenty of speed bumps. Perhaps the most daunting is the FOMC statement tomorrow. Analysts are projecting a December rate hike and any confirmation will be ill-received by the market. GDP came in hot at 2.9% and China's PMI was also strong at 51.2. A breach of SPY $212 would force a move down to the 200-day moving average ($208). That support is relatively close and the downside should be contained. The price action has been weak but I urge you NOT to load up on puts. I've seen this October weakness many times before and shorting into year-end is a losing proposition. If the market breaks down, I will participate passively with my swing trades. The move should be relatively shallow and brief. I will hold a few puts overnight, but not many. Year-end buying will float us back into the range and the real selling may come in January as it did last year. The polls are tightening and this is also adding uncertainty. New Clinton e-mails increase the chances of an election bombshell. We have been making money in the first few hours of trading. Yesterday I had success with both longs and shorts. The same tactic will work today and I'm not expecting much market movement. Traders will square up ahead of the Fed and the action will die down ahead of the announcement. Facebook will post results after the close today and it is the last mega cap tech stock to report. These stocks have not sparked buying and earnings season is not having much of a market impact. If the market closes below SPY $212 on Wednesday there will be a shorting opportunity. I will hold a few puts overnight, but the majority of my activity will be intraday. I will aggressively short stocks and I will increase my size. As I mentioned earlier, I'm not expecting this move to go below SPY $208 so I will keep my overnight shorts to a minimum. The move might only last a week. The market lacks direction and it's almost impossible to predict what's going to happen overnight as long as we stay in this tight range. FOMC statements have had a bullish bias for two years so who knows, maybe we will rally. Make your money early and call it a day. . . image

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