We Got the Market Rally We Needed Friday – Look For A Move To SPY $200

Posted 9:40 AM ET - Last week the SPY rallied through $191.50. I mentioned Friday that we needed to see a move through this level if we were going to rally to $200. The price action was strong; we blew right through it and closed on the high of the day. China posted its official PMI and although the press is negative, the numbers were not too bad. Manufacturing was just below 50 and services came in above 53. Without question, growth is slowing, but the PBOC has been injecting liquidity like mad. We have not heard of any defaults in the shadow banking industry and that is one skeleton that we want to keep in the closet. In a surprise move, the BOJ eased Friday and rates are in negative territory. This was one of the market catalysts that got us through $191.50. After the close today Google will post results. I'm expecting a good number and this will boost confidence. We will get many economic releases this week. ISM manufacturing will be dismal due to a strong dollar. ISM services will be solid. Based on the FOMC statement last week, we know the Fed is dovish. That reduces the importance of the jobs reports this week. We would still like to see growth above 200K. I am not expecting a rate hike until June (or later). Oil is weighing on the market this morning, but I believe it is close to forming a base. Any uptick in energy will help fuel a market rally. I still believe the market can challenge SPY $200. We saw the strength we needed Friday and we are in the earnings sweet spot. You know from my comments that my primary option trading strategy has been to sell out of the money bullish put spreads. Those positions are in great shape and I am selling more spreads after companies announce strong earnings. I want to see technical support and a horizontal breakout. The S&P 500 is down this morning. I prefer this scenario. Strong stocks are able to tread water and they are easy to spot. Once this early round of selling subsides, I will be trading stocks from the long side. Use SPY $191.50 as your guide. We want that support level to hold. Also use the first hour range as your guide. If we are above it, day trade from the long side. If we are below it, day trade from the short side. Swing traders should sell out of the money bullish put spreads in February. At very worst the market will tread water until options expiration and these trades will make nice money. Day traders should remain flexible and favor the upside today. . .

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