Market Won’t Like Hawkish Comments Today – Favor the Short Side

August 26, 2016
Author: Peter Stolcers, Founder of OneOption

Posted 9:30 AM ET - We have one more week until the summer doldrums end. The market is likely to probe for support when Yellen start speaking at 10 AM Eastern Time. Support at SPY $217.50 should fail and the market could drift lower today. Labor conditions are improving and credit markets are stable (Brexit was a non-event). This leaves room for a rate hike this year. Wednesday we saw a little selling pressure and it was easy to topple stocks. Trading volumes remain light. Asset Managers won't chase stocks near an all-time high and they are aware of seasonal weakness. The threat of a rate hike will spark profit-taking and they will pull bids. Yesterday I traded from the short side and I did well. My entry was not particularly good since I shorted early in the day, but I stuck with positions and that paid off. I will buy some SPY puts this morning and I will hold them over the weekend if the SPY closes below $217.50. If the market makes a new low after two hours of trading we could hit an air pocket. I am not looking for a sustained decline, but the S&P 500 could easily shed 20 points. Keep it small and favor the downside today. If we continue to drift lower, carry a few shorts over the weekend. . . image

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