Lots of Potential Speedbumps This Week – SPY Support At $212 Is Critical

October 31, 2016
Author: Peter Stolcers, Founder of OneOption

Posted 9:30 AM ET - The market is wound very tightly and we have been in an extremely tight range since July. The longer and tighter the range, the bigger and more sustained the breakout. We are dangerously close to major support at SPY $212 and that makes day trading from the long side more dangerous. Last Friday we drop below $212 on news that the FBI was reopening the Clinton e-mail investigation. Over 600,000 new e-mails were found and this is a rather unusual move by the FBI given that we are a week away from the election. The potential for a bombshell looms. The market has factored in a Clinton victory and uncertainty is bearish as polls tighten. Wiki-leaks promised to release damaging e-mails this week that they claim will lead to Hillary's arrest. This could be another landmine - we will see. The FOMC statement on Wednesday will point to a December rate hike. They will soften the blow by stating that the next rate hike is months away. This news will weigh on the market. There are also a number of major economic releases this week (ISM services, ISM manufacturing, ADP and the Unemployment Report). Any strength will move up the tightening timetable. GDP came in at 2.9% last Friday and that was "hot". The market is addicted to easy money and the threat of additional rate hikes will keep a lid on the market. Earnings season is in high gear. Mega cap tech stocks did not attract buyers. Facebook will post after the close on Tuesday and once those earnings are out, shorts will be emboldened. There are plenty of potential speed bumps. I will not short this market until we close below SPY $212. I want to see follow-through selling the next day and I want to see late day weakness. Without these ingredients any technical breach is simply another head fake. The 200-day moving average is SPY $208. Even if the 100-day moving average fails, support is nearby and the downside is relatively contained. Should that level fail easily, we could see a nasty drop. Given year-end strength and the lack of global credit issues, I see this scenario as unlikely. We are finding excellent trades on both sides of the market. This morning I will evaluate longs and I will wait for the market dip. That move will reveal true relative strength and when the market finds support I will buy these stocks. I have to be more careful trading from the long side then I have been in recent weeks. One small air pocket could push us below support and that would lead to sustained selling. I need to keep a close watch on my longs and I will have one eye on the market. I will also look for shorts. If the market trades below $212 I will favor that side and I will use that $212 level as my stop. Watch SPY $212 very closely today and use that as your guide. If the market is above the first hour high you can favor the long side. If the market is below the first hour low, favor the short side especially if we are below $212. This is going to be a very exciting week and trading activity should be brisk. . . image

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