Market Off To the Races – Look For A Bullish Week – Get Long

October 5, 2015
Author: Peter Stolcers, Founder of OneOption

WATCH US MAKE MONEY IN THE CHAT ROOM - CLICK HERE FOR THE FREE TRIAL Posted 11:00 AM ET - Last week we started to see signs of support. The market got a dose of bad news on Thursday and it found support above the low from Wednesday. A dismal jobs report (149K) on Friday sparked an early round of selling. I welcomed that move because it would reveal bona fide support. Stocks reversed sharply and shorts ran for cover. By the end of the day the S&P 500 rallied 60 points off of the low and it closed on the high the day. We are seeing follow-through buying today. In my comments the last two weeks I have been advising you to sell out of the money put credit spreads. This strategy allows you to keep your distance and to take advantage of time decay. Without question, support at SPY $182 was going to hold. You just had to be prepared to weather one more round of selling. I also mentioned that the rally would come very quickly and you needed to be proactive. Here is what happens during these inflection points. Once the rally starts, it is extremely difficult to sell puts. Bids vaporize because no one wants to buy puts and there is no latitude to work orders between the bid/ask. The only way to get filled is to hit bids. In the frenzy, traders are trying to adjust orders so that they can get trades executed and they miss a huge part of the move. If you experienced this last Friday you need to log this lesson for future reference. This is exactly why I told you to start selling put spreads 2 weeks ago. Every year in September it looks like the world is going to fall apart. Markets tank and pessimism looms. Traders question the viability of a year-end rally and we start hearing statements like, "this time is different." I've been through this for 25 years and August through November is traditionally my most profitable period of the year. This will be another banner year. A few weeks from now everyone will forget the dark clouds that haunted this market. Earnings will be decent and the holiday shopping season will begin. Stocks are still attractive relative to bonds and corporate buybacks are at record levels. Friday I sold the heck out of VXX just like I said I would if SPY $189.50 held. I have a very large position and I am making a killing. I also sold bullish put spreads the last few weeks and those positions are in great shape. Today, I am day trading from the long side. I don't want to buy calls because the premiums are still high. I prefer to buy stock and I can leverage on a 4:1 basis intraday. If you purchase call options, go deep in the money where the deltas are high (.80+). This way will avoid buying a lot of time premium. Look for stocks that have relative strength, have compressed, and are breaking through horizontal resistance on heavy volume. These will be your best plays. I am expecting bullish price action the rest of the week. ISM services was strong this morning and earnings season kicks off Thursday. Asset Managers have been waiting to buy a dip and now they see strong support. I am not looking for a massive rally back to the all-time high, but I feel that we should be able to reach SPY $202 with ease. After that, the headwinds will start blowing. Look for opportunities to get long this week. . . image

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