Market Finding Support – Get Ready To Sell Bullish Put Spreads and Buy Calls

Posted 9:30 AM ET - Yesterday, the market pulled back on the notion that interest rates could go up in December. The SPY found support at $207 and the damage was relatively contained. I believe this dip will be resolved quickly and the market will challenge the all-time high in November. Traders are tired of sluggish growth and a 0% interest rate policy. The market has been trapped in a range and the only thing that can push us higher is growth. Stocks can shoulder higher interest rates if accompanied by economic activity. Many Asset Managers are under-allocated. They missed the 100 point S&P bounce that took place in 24 hours and they have been reluctant buyers the whole way up. There is no sense of urgency and most do not feel that they will miss a big year-end rally. If the market rebounds quickly, we could see some panic buying. The market decline yesterday flushed bullish speculators out and it attracted some bears. When buyers return, short covering will fuel us higher and we could poke through the all-time high. Understand that I am not looking for a massive breakout. I believe we could see a nice 50 point S&P 500 rally. The easy money has been made. I caught the decline in August and the snapback rally. It has been an excellent year and I am trading half of the size I was using August through October. It is easy to piss away profits in a sideways market and the momentum is gone. This is NOT a time to spread your wings. If the SPY can close above $207 today I will start selling out of the money put credit spreads on strong stocks (a.k.a. bullish put spreads). This strategy allows me to keep my distance and I can take advantage of accelerated time decay. If the SPY closes above $208 I will also buy a few calls. If the market rallies and we close on the higher the day, I will get more aggressive with my long positions. Keep in mind that we are only talking about a quarter-point rate hike from 0%. A sluggish economy should be able to shoulder this move. When the Fed does hike, liftoff will be accompanied by "one and done" rhetoric. There are plenty of dark clouds (strong dollar, rich forward P/E's, slow growth in China, emerging market credit risk) to keep a lid on the market. Seasonal strength will temporarily overpower these concerns. Trade smaller size the rest of the year and look for opportunities to get long. . .

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