Market Should Challenge SPY $205 – Sell Bullish Put Spreads

Posted 9:30 AM ET - The market was unchanged yesterday and it traded in a very narrow range the entire day. Volume was light and Monday was the slowest day of the year. Janet Yellen will address the New York Economic Club at 12:20 PM Eastern Time and the action should pick up a little today. A few weeks ago, the FOMC statement was dovish. I am expecting market friendly comments today. ADP will report private sector employment for the month of March tomorrow. Friday is when the economic news will really pick up (official PMI's, jobs report and ISM manufacturing). Traders will return from holiday and the activity will improve. Earnings season is two weeks away and that typically attracts buyers. I am expecting a rotation out of cyclicals and into tech. Q1 is ending and we could see some rotation (window dressing) the rest of the week. Support at SPY $202 held last week and if that level is breached, the market won't spend much time below it. Major support at $200 will attract buyers and the market will be able to stay above the 200-day moving average through April options expiration. My two week forecast bodes well for bullish put spreads and day trading. Sell out of the money put spreads and distance yourself from the action. This option trading strategy takes advantage of time decay. Your short strike should be below support and if that support level fails, buy back the spread. If support is maintained, let time decay work its magic. Use the first hour range of the SPY as your guide for day trading. If we are above it, buy stocks with relative strength. If we are below it, short stocks with relative weakness. I am seeing great opportunities on both sides of the market. The SPY should trade in a range between $202 and $205 for the next two weeks. Consequently, I do not advise buying options. We don't have a tailwind in either direction. The economic numbers this week should be decent, but not hot. I expect to see a gradual grind higher ahead of earnings season and we should be able challenge $205 in the next two weeks. . .

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