Stocks Should Rally the Rest of the Week – Use SPY $202 As A Guide

Posted 10:00 AM ET - Last week the market rallied above the breakout at SPY $200. That support level has been able to hold and we are seeing late day buying. The bid should strengthen into mega-cap tech stock announcements Thursday after the close (Amazon, Google and Microsoft). I am expecting positive price action the rest of the week. China posted decent economic numbers yesterday. GDP came in at 6.9%, retail sales came in at 10.9% and industrial production came in at 5.7%. Conditions seem to be stabilizing and China should not provide a headwind for at least a few weeks. The FOMC will meet on October 28th and very few analysts believe that they will hike rates. If they soften their tone and December is off the table, the market will stage a nice rally. If they hint that December is still possible, the market will pull back slightly. Flash PMI's will be posted Friday and the numbers should be in line. Sluggish results are expected and the numbers will be lackluster. Earnings need to breathe life into the market. I still believe that we could see SPY $205 in the next week or so. Once Apple announces, the buying will start to dry up. No one is expecting a runaway rally. International companies are being hurt by sluggish global activity and by a strong dollar. Restaurant and retail groups are experiencing intense competition due to oversaturation. Minimum wage hikes are also hurting the bottom line. I want to sell out of the money call credit spreads on basic material stocks, but it is too early. The bounce in the energy sector looks vulnerable. I will wait for earnings announcements and I will sell bearish call spreads on weak results. I am long calls and I will gradually take profits as the market moves higher. The closer we get to SPY $205, the more cautious I will get. I am day trading from the long side. We've seen a pattern the last three days where the market makes a new intraday low a couple of hours before the close and then it rallies sharply into the bell. We should still see positive price action for the next two weeks. The FOMC statement will determine if we continue to rally in November or if the market rally stalls. Stay long and be ready to take profits. Use SPY $202 as a guide and take profits if we close below it. Use SPY $200 as a hard stop and exit remaining long positions if it is breached. The market should probe for support early in the day and I am expecting prices to firm up the rest of the week. . .

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