Buy Calls and Sell Put Spreads – Market Ready To Test the High

Posted 9:00 AM ET - Yesterday, the market rallied above SPY $208 and I bought some calls. It continued to March upward and I bought more calls when it closed on the high of the day. I outlined this strategy yesterday and I believe the brief wave of selling has run its course. The market will challenge the all-time high in November. Many Asset Managers are under allocated. They missed the initial rebound in September and they were reluctant buyers the whole way up. Now that we are within striking distance of the all-time high, they are anxious. The bid will strengthen over the next few days and shorts will get squeezed. China posted decent retail sales and industrial production overnight. They no longer provide a flash PMI and slow growth in China will not be an issue the rest of the month. We need strong economic data the rest of the way. Good news is good news and bad news is bad news. The market should be able to shoulder a tiny quarter-point rate hike as long as economic activity is improving. If the Fed does move, they will include "one and done" rhetoric to soften the blow. Seasonal strength will overpower all of the other concerns. I am not looking for a runaway rally, just a nice 50 point S&P move. I have trimmed my size by 50%. I caught the August decline and the rebound in September and October. The easy money has been made. Sell bullish put spreads and buy calls today. Look for positive price action and stick with mega-cap tech stocks. Financials should also do well. . .

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