Market Should Dip Early This Week – Action Will Dry Up – Sell Bull Put Spreads

Posted 9:30 AM ET - Central bank money printing pushed the market through major resistance and stocks continued to grind higher last week. The FOMC statement was dovish and quadruple witching fueled the rally. The S&P 500 is safely above the 200-day moving average and that support level should hold through April options expiration. I am expecting a round of light selling this week. The damage will be contained and I suggest selling out of the money bullish put spreads on any dip. This option trading strategy allows you to take advantage of time decay and you can distance yourself from the action. Flash PMI's will be posted Thursday. This is the only news event of the week and it is less significant now that China only posts the official reading. The market is closed on Friday so trading volumes will taper off as the week unfolds. From a day trading standpoint, I plan to trim my size and activity. My goal will be to find a couple of good trades early in the day. If the market gaps lower, I will look for longs. If the market gaps higher, I will look for shorts. Earnings season will begin in three weeks and that will keep buyers engaged. My longer-term forecast is bearish. Global activity is sluggish and central bank money printing is a sugar high. It sparked short covering in commodity stocks and emerging markets. China is one of the largest consumers of raw materials and their imports fell 14% last month. Last week Caterpillar lowered EPS estimates by 40%. Cyclical stocks are at lofty levels and they are ripe for shorting. I have a few short positions that I will close out. These stocks have not rallied with the market, but I am on the wrong side and I need to take my lumps. Keep your size small this week and reduce your activity. Day traders should try to make money in the first two hours of trading and then call it quits. The daily ranges will be tight. Swing traders should look for opportunities to sell out of the money bullish put spreads on any market dip. Prepare for quiet trading. . .

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