Market Could Dip After FOMC Minutes Today – Watch For Profit Taking

August 17, 2016
Author: Peter Stolcers, Founder of OneOption

Posted 9:30 AM ET - The market rallied Monday and it gave back those gains yesterday. Stocks are flat this morning ahead of the FOMC minutes. Trading is extremely dull and volumes are off 50%. The news this afternoon could be a small speed bump for the market. A few weeks ago the Fed's comments were a bit more hawkish. Brexit did not spark credit concerns and US labor conditions have improved. The last jobs report (255,000) was relatively "hot" and the likelihood of a rate hike has increased. This might spook investors. Traders are looking for anything they can sink their teeth into during this news vacuum. A small round of profit-taking could prompt buyers to pull bids and we could drift lower. I wouldn't read too much into the price action during these summer doldrums. That goes for dips and rallies. The market is very tightly wound and the trading ranges are tight. When we do finally breakout, the move will be sustained. My suspicion is that the downside will be tested. August and September are typically weak months. From a day trading standpoint I am favoring the long side. I am leaning on support at SPY $217.50 and as long as we are above it I am an intraday buyer. Be patient with your day trades. I jumped the gun yesterday and I had my first losing day in two months. The losses were very small, but it was a down day nonetheless. Try to make your money early and look for quiet trading ahead of the FOMC minutes. I will be flat into the number and I will have a list of longs and shorts ready for action. Asset Managers are not eager to chase stocks near the all-time high. If they sense profit-taking they will pull bids and we could easily drift lower. Bullish speculators need to be flushed out and we could see a nice little dip of 20 S&P points or more. If we do start to slide, look for this pattern. Many stocks are in tight compressions near the upper end of their trading range. They have not been able to rally with the market and they have plenty of downside. Look for stocks that have broken horizontal support and focus on the low end of that compression. As soon as they poke through the selling pressure will increase. Also look for stocks where the 100-day and 200-day moving averages are well below the current price level. A good example of this pattern is X on 8/9/16. We shorted that in the chat room and it was a good trade. The market was moving higher and the stock was selling off. We love that type of relative weakness. I have included a chart below. Please study it. This is the pattern we trade. Once we like the set up on a swing basis we know we can drill down and day trade it. Try to make your money early and set passive targets ahead of the FOMC minutes. Trim your size and reduce your trade count. . . image

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