Market Will Try To March Higher In A Stiff Headwind – Watch SPY $202

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

Posted 9:35 AM ET - Yesterday's FOMC statement was more dovish than expected. As forecasted, we got the rally and the SPY closed at a new high for the year. We are headed for a news vacuum and the current momentum should push us higher. The market has been in a pattern where it opens on the low and closes on the high this week. That is a very bullish pattern. Oil is moving higher this morning and that is also bullish. The early dip should run its course quickly and I am expecting a grind higher. I will be day trading from the long side this morning. FedEx posted strong numbers, but it lowered its global GDP forecast for 2016 by .5%. They expect global growth to come in around 2.2%. Caterpillar pre-announced and EPS will miss by 40%. The stock is down slightly and it is shouldering the news for now. I believe these heavy equipment manufacturers will present an excellent shorting opportunity soon. I am torn between my intermediate forecast (bearish) and my short-term forecast (bullish). I am short stock and I am long puts. My overnight exposure is small and I've just started building my short positions. I am able to find stocks with relative weakness that are ready to roll over. Since I will be focusing on the long side for my day trades this morning, those bullish day trades will help me hedge my overnight shorts. I want to see my shorts move lower on the open. As long as they remain weak relative to the market and as long as they stay below technical resistance, I will stick with the positions. If they rally, I will take my lumps and I will look for a better entry point. If the market does not recover and it drifts lower, we have support at SPY $202. The damage should be very contained today and I'm expecting that level to hold. If we see late day selling and if SPY $202 is breached, I will add to short positions and I will buy some puts. If the market drops below $200, I will add to my short positions. This is a pretty easy game plan to follow. I know I am early on my shorts and that I might take some heat while the market tries to grind higher. From a risk reward standpoint, it doesn't make sense to take overnight longs. This rally is starting to hit resistance and I don't want to try and squeeze every nickel out of the move. If it drops, my shorts will make a lot of money very quickly and I like that risk profile much better. Look for an early low and a gradual grind higher. If the market can't rally from here, it would be a very bearish sign and it would tell me that profit-taking is starting to set in. The market has all of the good news it needs and there won't be any news to stand in the way of the rally next week. Look for a grind higher and a stiff headwind. . . image

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