Don’t Be A Fool – Take Profits Before the FOMC Wed – Upside Is Limited

October 26, 2015
Author: Peter Stolcers, Founder of OneOption

TAKE THE 1 WEEK FREE TRIAL FOR INVESTORS AND FOLLOW OUR CALL TRADES Last week, mega-cap tech stocks sparked a rally and the SPY finished above its 200-day moving average. Amazon, Google and Microsoft knocked the cover off the ball and Apple is on deck Tuesday after the close. The price action should remain bullish until the FOMC Wednesday. Initial jobless claims fell to their lowest level since 2009. Last month ADP posted decent numbers in their private sector jobs report. This company processes payrolls for small and medium-size companies so I trust their number. I believe the government's numbers was wrong and it will be revised upward next week. The Fed will have the latest employment statistics when they meet. They will not show their hand during the FOMC statement this Wednesday and they will leave the possibility for a rate hike in December on the table. Traders will view this as hawkish and the release will spark selling. Economic conditions in China have stabilized and their market is rebounding. This will also give the Fed some breathing room to hike. The early part of the earnings cycle generates euphoria. Stocks shoot higher and good news is priced at. At a forward P/E of 18, there is room for profit-taking. I have seen more selling in the last few months that I've seen in years. Multi-nationals are taking a hit because of the strong dollar. Energy stocks are sluggish and oil prices remain low. Retail and restaurant suffer from over-saturation and higher wages. The S&P 500 will post lower earnings year-over-year for Q3. Valuations are a little stretched. You can add the debt ceiling to the worry list (it will be raised at the last minute). The theme this week is: Take Profits. The upside is relatively limited from this point on and we've had a fantastic run. Last week’s rally squeezed shorts and it forced some under-allocated Asset Managers to plug their noses and buy. This move will run out of steam as we approach the all-time high. I will day trade the rest of the rally and I can capture the move without taking overnight risk. Make sure to be out before the FOMC statement Wednesday. If the SPY falls below the 200-day moving average, I will sell out of the money call credit spreads. I am looking for bullish and bearish credit spreads after earnings releases. Don’t be a fool - take profits. . . .image

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