Market Decline Will Be Brief and Shallow – SPY $200 Will Hold Today

Posted 9:50 AM ET - Stocks are taking a bit of a breather this morning and I expected a small speed bump today. China's trade numbers were a bit soft and global markets are down as a result. The selling pressure today will help us gauge the strength of the bid. I am expecting support at SPY $200 to hold. In yesterday's comments I mentioned that China's trade numbers could be weak. This Friday they will post IP/retail sales/GDP. Those numbers should be better than feared and China's stock market should grind higher. Surprisingly, Chinese stocks were flat overnight and the rest of the world was down on the trade numbers. This suggests that Chinese stocks are grossly oversold and they are due for a nice bounce. Intel will post earnings after the close today. PC sales were down in Q3 and I doubt they will make up the difference in mobile chip sales. This could weigh on the market slightly. Semi-conductor stocks have been moving higher and we could see a little profit-taking. Intel does not have the same impact on the tech sector that used to. I still believe that Asset Managers want to buy ahead of mega-cap tech stock announcements (AAPL, FB, GOOG, MSFT, AMZN...). The SPY should be able to push through resistance at SPY $205. I am only looking for 3% of upside from here so I don't expect panic buying in anticipation of a massive year-end rally. My overnight risk exposure is relatively small. I do own some deep in the money calls on stocks that are breaking out. This is a relatively small portion of my trading strategy and I will hold the positions as long as the breakout is preserved. Yesterday I bought back some of my put spreads for pennies. They are way out of the money and today's decline won't mean much. I will buy more of them back today. If the early decline gains traction, I will buy back my VXX short. My stop is SPY $200 and I don’t want us to close below it. Should this scenario play out, I will also day trade from the short side. This will help me hedge some the risk I have on my long call positions. Again, I'm not expecting a big decline. In the last two months we've seen that early momentum can accelerate throughout the day and I just want to have a game plan in place if this happens. I still believe the market has upside into earnings season and I want to be long. If the early decline quickly finds support, I will day trade from the long side. If the low from the first hour holds this morning, we should rally back. A shallow dip would be bullish and that is what I'm expecting. . .

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