Exit Overnight Longs – Risk Increasing Daily – Use SPY $215.75 As A Guide

Posted 9:40 AM ET - The market is trapped in a very tight range. In the last two weeks it has been stuck between SPY $215.75 and $217.50. Mega cap tech stocks fueled a QQQ breakout, but the DIA and SPY are just treading water. The selling pressure will increase with each passing week. Official PMI's were in line this morning. ISM manufacturing will be posted 30 minutes after the open and it should not have a major market impact. ISM services will be posted on Wednesday and it has been improving. ADP will be posted on Wednesday and we get the Unemployment Report on Friday. Labor conditions will continue to improve and the numbers will initially be well received. As the month wears on fear of a September rate hike will increase. Last week the Fed made relatively hawkish comments. Labor conditions are improving, economic activity is stable and Brexit did not weigh on credit markets. Italian banks are straddled with bad debt and this issue is coming to a head. Brazil is in dire straits and this will become apparent during the Olympics. Credit concerns will start to surface and we should see some profit-taking in August. Now that mega-cap tech stocks have announced, shorts will be a little more aggressive. I'm finding it more difficult to make money trading from the long side. Stocks gradually tick higher in nickel increments and then they drop $.30. This is a tough pattern for day trading and it is a sign that the market/stocks are getting tired. I suggest focusing on stocks that have pulled back and that are rebounding off of a base. They have more upside and the price action is steady. I also suggest waiting for a pullback on a five-minute chart. You have to be very patient in this market environment and you have to set passive targets. Last week I started looking for shorts and I'm starting to see some really nice setups. I like stocks that have rallied to resistance and that are in a very tight trading range. When they break below horizontal support they are prime candidates for shorting. They are at the top of the range and they have plenty of downside. Once the downward momentum gains traction, the profits come quickly. I will spend more time looking for shorts with each passing day. However, I won't aggressively short until the SPY closes below $215.75. The news will dry up dramatically after this week. Look for a quiet start and tight daily ranges. You should be out of your overnight longs. The upside is limited and the probability of a nasty little pullback increases with each day. Be patient with your day trades and buy dips. Keep one eye on the market and make sure you're on the right side of the action. Use SPY $215.75 - $217.50 as your guide. . .

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