Critical Juncture – FANGs Will Force A Breakout or Commodities Will Fail

Posted 9:30 AM ET - Last week the market staged an impressive rally. It broke through horizontal resistance at SPY $195 and it challenged the 100-day moving average at $200 after a very "hot" jobs report. It is unusual for the market to move through major resistance on the first attempt and we are seeing a small pullback this morning. Basic materials, energy, emerging markets and small caps lead the rally. Macro conditions have not changed and this was a short covering bounce. Once it runs out of steam, these stocks will be ripe for shorting. FANGs lead the market last year and they have not participated in the rally. They will either push us through or the laggards will roll over. This is a pivotal time for the market. China will post trade numbers this week along with IP/retail sales. These will be fairly important data points. Chinese officials projected 6.5% - 7% growth this year. The ECB will post its decision on Thursday and most traders are expecting them to ease. This could be a "sell the news event". The bid is stronger-than-expected and it is too early to get short. The market could tread water here for a couple of weeks and then try to breakout. If it is not able to get above $200, the selling pressure will build and we can sell out of the money bearish call spreads. I am short out of the money bullish put spreads and these positions are profitable. I am safely out of harm's way and time decay will eat away at premiums this week. I plan to buy these spreads back this week so that I can release margin and lock-in profits. I am also long a few call positions. My overnight risk exposure is tiny. The majority of my trading has been focused on intraday moves. Down opens have been excellent for us this year. Once the market finds support, we will buy stocks with relative strength that have recently broken through horizontal resistance. I am finding better quality longs so I will focus on that side of the market. On a short-term basis, I am neutral. The market could swing either way and I will wait for signs one way or the other. On and intermediate term basis, I am bearish. Macro-economic conditions have not changed and global growth is flat. Central banks are out of bullets and they can't prevent a recession if conditions deteriorate. Focus on bullish day trades today and get long once support is established. If the market trades above the first hour high, increase your size. If the market trades below the first hour low, favor the short side for your day trades. . .

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