Let the Market Fall – Get Ready To Buy Before the FOMC Next Week

Posted 9:50 AM ET - The market has taken on a negative tone, but I wouldn't read too much into it. As far as I'm concerned this is all noise. We are seeing some position squaring ahead of a likely rate hike next week and there is a lot of high-frequency trading (HFT). Once the intraday momentum is established, the market continues in that direction. Oil prices are getting the blame for today's decline. Emerging markets rely on strong energy prices and this could raise credit concerns (Brazil and Russia). To a much lesser extent there will be domestic job losses and some private credit issues for banks that are exposed to exploration and production. Not all of the news is negative. Oil is a major input cost for most goods and this will benefit consumers. Lower pump prices also mean that Americans will spend more money dining out and shopping. Transportation costs will also decline. OPEC is dead. Many suspected as much, but now it's official. There are too many producers and Saudi Arabia is not cutting production. Iran’s sanctions are lifted and they will be pumping like mad. On the demand side, China accounted for the greatest increase during the last decade. Oil imports declined 3.3% month over month and that is a little concerning. China’s trade numbers were a little soft and that is weighing on Asian markets. I don't get overly excited by oil related market rallies and I don't get too worried about oil related market declines. Energy stocks will bottom out and this will no longer weigh on the market. Most of these stocks are near major support levels now. Yesterday I day traded from the long side. I went eight for eight and had nice profits. A small rally would've produced big returns. I plan to stick to the strategy today. My overnight risk exposure is very small. I still have some out of the money put spreads and I will monitor them closely. If technical support is breached on these stocks I will buy back the bullish put spreads. The 200-day moving average will be tested today and as I mentioned in yesterday's comments, it is not as significant as the 100-day moving average. The only thing that can get me to take overnight positions is a big decline in the next week down to SPY $202. That is a major support level and I will be a call buyer ahead of the FOMC. I would like to see an air pocket and a capitulation low before I get in and this scenario could play out. The market is ready for a rate hike and a dovish Fed outlook will attract buyers into year-end. This would set up a nice trade, but I will be quick to take profits. The price action is tenuous and that could spell trouble in 2016. This is normally a time when we see seasonal strength and that is not happening. This is a day trading market and I plan to buy stocks today. Take the free trial and I'll show you how we do it. . .

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