Market Blasts Thru the 200-Day MA – Take Profits On Call Positions!

October 23, 2015
Author: Peter Stolcers, Founder of OneOption

TAKE THE 1 WEEK FREE TRIAL FOR INVESTORS AND FOLLOW OUR CALL TRADES Posted 9:20 AM ET - What a difference a day can make. Wednesday, we saw anemic volume and selling late in the afternoon. Asset Managers pulled bids and stocks retreated. After a major round of earnings releases Thursday morning, stocks rebounded. The bid was strong. We did not probe for support, we just kept grinding and we closed above the 100-day moving average and on the high of the day. This was very strong price action. I've been telling you for more than a week that buyers would remain engaged heading into earnings Thursday afternoon. Google, Amazon and Microsoft blew the doors off of estimates. Tech stocks are jumping before the open and the SPY will rally above the 200-day moving average. As outlined, I sold half of my call positions late yesterday. This is going to be a great day and I'm going to the bank. I will take profits on almost all of my call positions today. If the market screams higher, I will sell into strength. The huge pop this morning is partly due to short covering. Anyone who sold calls above the major moving averages will be scrambling to buy them back today. Some Asset Managers who are under allocated will also hit the panic button. These mega cap tech stocks typically generate euphoria. The macro backdrop is different this time and the excitement will wane quickly. I have seen more selling the last few months than I have seen in years. Initial jobless claims hit a multi-year low yesterday. There is likelihood that last month’s jobs report was inaccurate. It was contrary to the ADP report (which I trust). The Fed will have a sneak peek at employment conditions and their tone could be more hawkish next week. China's market has formed support and they cut interest rates overnight. Flash PMI's in Japan and Europe were better than expected this morning. We should still see a decent bid heading into Apple earnings Tuesday afternoon. I suggest exiting all long positions before the FOMC meeting on Wednesday. Global economic conditions are still very sluggish. Earnings on the S&P 500 are expected to be down year-over-year for the second straight quarter. Stocks are trading at a forward P/E of 18 and that is fairly rich. The debt ceiling looms and so does an interest rate hike. These factors will keep a lid on the rally. I would not be surprised to see a massive spike higher that gradually gives up gains throughout the day. I will lock in profits. We are entering a period of seasonal strength so I am not ready to short this market. I might start selling out of the money call spreads if we get within striking distance of the all-time high. I will focus on basic material stocks, retail, restaurant and some industrials. Enjoy the run today and take profits. If the market spikes and rolls over, I will be out of all of my calls. If it gradually grinds higher throughout the day, I will take profits on most of my calls and I will hold a few over the weekend with the intent of being out before the FOMC meeting. I hope you caught this move. . . image

Daily Bulletin Continues...

Want Full Access?

Become a Member

Start Free Trial

No credit card required.


Previous Bulletin

October 22, 2015

Next Bulletin

October 26, 2015