Market Poised For A Bounce – Get Long If We Make A New High After 2 Hours

January 12, 2016
Author: Peter Stolcers, Founder of OneOption

Do you trade everyday? GET ALL OF MY RESEARCH FREE Posted 9:30 AM ET - The market has been in a pattern where it opens on the high and closes on the low. That is bearish and it might've ended yesterday. Just when it looked like we might finish on the low of the day, buyers stepped near the closing bell and the losses were erased. This morning we are seeing follow-through buying. Before you get too excited, make sure the rally this morning holds. The downside will be tested. We want that to happen early and we want it to be brief and shallow. If the market makes a new high for the day after two hours of trading, you can get long with confidence. I do not like buying calls when option implied volatilities are sky-high. If you can buy liquid deep in the money calls that trade at parity, fine. I will be day trading stocks from the long side. I have been doing this successfully the whole way down. I trade a very specific pattern and it is incredibly powerful. I like trading from the long side because I have the potential to catch a snapback rally. Good trades instantly turn into incredible trades when it happens. Normally, I would be selling out of the money puts in this environment. Unfortunately, earnings season is upon us and I don't want that risk. Option premiums hold up well into the number and I never hold over the announcement. Most stocks are also below major support levels and I don't have anything to lean on. That is a critical component for bullish put spreads. As a result, I will still take advantage of high option implied volatilities by selling VXX/VIX short. China will post trade numbers overnight and that could be a speed bump. With each passing day I believe the bid will strengthen. Options expiration is Friday and any news from central banks could spark a short covering rally. Asset Managers like to buy stocks ahead of earnings season. In the next couple of weeks we should be able to get back to SPY $200 and perhaps even higher. If we make a new high after two hours of trading, I will increase my size and I will get more aggressive. I still want to keep my overnights to a minimum. Get ready for a nice bounce and get long. Treat this like a bounce (not like a longer term rally) and you will have the right mindset. . . image

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