Market Dips Will Be Brief and Shallow – Bid Will Strengthen Into Earnings

October 8, 2015
Author: Peter Stolcers, Founder of OneOption

Posted 11:30 AM ET - After a tremendous rebound from the August closing low last week, the rally has stalled. There is resistance at SPY $200 and is likely to hold this week. The market needs time to consolidate recent gains before we continue higher. Asset Managers did not have much of an opportunity to buy the dip last week. The S&P 500 moved 100 points in 24 hours. Those who pondered missed the move and they are hoping for a pullback. That means any dip is likely to be shallow and brief. If the market treads water, they will get more anxious with every passing day. The FOMC minutes will be released this afternoon. They should be relatively hawkish, but they don't take a dismal jobs report into account. If polled, Fed officials would tone down their desire to hike. I don't believe they will tighten in 2015. Alcoa will post after the close. It won't have much of an impact and the major releases will start next week. Asset Managers who want to get long will get nervous if they don't get a chance to buy a pullback before mega cap tech stocks start posting. China will post its trade numbers on Tuesday and retail sales/IP/GDP on Friday. These will be important numbers. Government officials claim that conditions have stabilized. China's market was up 3% overnight after being closed for a week. The market needs a little time to consolidate gains. I don't believe we will get much of a pullback and the bid will strengthen each day. We should be able to breakthrough SPY $200 next week and we will challenge the upper end of the range at SPY $202. A breakout above $202 would challenge the SPY $205 level, but it will be tough sledding from that point on. My bullish put spreads are in fantastic shape and time decay is taking its toll. VXX continues to drift lower and that position is making money as option implied volatilities contract. I am long deep in the money calls that trade with a Delta over 80. This is a surrogate stock position and I'm using this strategy to play horizontal breakouts. This is a relatively small part of my overall allocation. I am also day trading stocks from the long side. I feel that it will be able to catch the remainder of the market rally using this strategy using 4:1 leverage and I won't have overnight risk exposure. Look for support to be established throughout the day. Stocks should be able to recover and grind higher. Resistance at SPY $200 should remain intact this week and we will rally above it next week. . . image

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