China’s PMI Was Weak – I Will Short This Rally When It Stalls Today

Posted 9:30 AM - Yesterday the market broke support at SPY $195. If you shorted stocks when the first hour low was breached, you made money. We have been using this tactic for our day trades in the chat room and it has been very effective. This morning the market is bouncing. The overnight news does not justify the move and I don't trust it. Resistance is now at $195. I will be looking for shorting opportunities this morning. China's official PMI's were weak. Europe's were slightly better-than-expected, but still dismal. The PBOC is pumping liquidity into the banking system like mad and traders expect the ECB to ease this week. These two factors are temporarily keeping buyers engaged and the "sugar high" will wear off soon. ISM manufacturing will be posted 30 minutes after the open. This has been a weak number and the expectation is for reading below 50. That indicates contraction. Initial jobless claims have been steady the last few weeks and we should see 180K jobs on Friday. This number would not have much of an influence on the market one way or the other. A number in the 150K range would be bearish. We are at a critical juncture and it doesn't make sense to guess which way the market will go. If it rallies above SPY $195, I will sell a few out of the money bullish put spreads. If the market falls below $195 I will sell a few out of the money call spreads. My swing trading will be fairly small. I am very focused on day trading. Now that stocks have rallied off of their January lows, I am seeing excellent shorting opportunities. I will trade both sides of the market. I use my trading system and platform to identify relative strength and relative weakness. Then I use the first hour range to determine which side of the market I will favor. If we are below the first hour low, I look for shorts. If we are above the first hour high, I look for longs. Once I identify the best candidates, I wait for price compression and a breakout from that compression. I will NOT be buying options unless the SPY rallies to $200. In that event I will prepare to buy puts. Option implied volatilities will decline if it hits that level and the market will have room to fall if it gets there. China's PMI needed to be stronger and I doubt the S&P 500 will challenge the 100-day moving average. I hope I am wrong because I want to get there. Use SPY $195 as a guide for selling credit spreads and use the first hour range as your guide for day trades. . .

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