Market Still Working Off Jitters – I Am Day Trading From the Long Side – Here’s Why

Posted 10:00 AM ET - Last week, the market probed for support and SPY $192 was breached. That was a major horizontal level and the selling pressure accelerated Thursday morning. Once the low was established, I bought SPY calls and I took my largest overnight position of the year. Bearish sentiment had reached an extreme and shorts were vulnerable to a squeeze. I expected to hold my call position for a few days. The S&P 500 gapped higher Friday and it looked like a nice rally was underway. Janet Yellen said that the Fed still wants to raise rates this year. The market was receptive to the news. The Speaker of the House (Boehner) resigned and some analysts feel that a government shutdown is possible. Sellers sold into the rally and gains evaporated. The S&P 500 is down 13 points this morning. This base is taking a long time to form and that is a sign of heavy selling pressure. We still have a few weeks of seasonal weakness to get through. We will see some window dressing at the end of Q3. The economic releases this week should be decent. ISM manufacturing will be soft, but ISM services will be decent. The jobs reports should also be stable. Earnings season will kick off in a couple of weeks and that will attract buyers. I was short VXX last week and I closed that position down for a small loss. My gains from my call position on Thursday far offset my losses and I went into the weekend flat. I will focus on day trading from the long side this week. I made excellent money using this strategy last week. I will look for stocks that have relative strength and that have moved through minor resistance after forming a base. Buyers are lining up and these oversold bounces are producing winners that run $1 - 2. I will wait for market support to be established this morning and I will buy these stocks when the market looks poised for a bounce. Most stocks are extremely oversold. When I try to short them during a market decline, they drip lower. This is like trying to squeeze water out of a rock. I'm finding much better movement trading from the long side. I expect to see strength this week, but we still have some jitters to work off. Look for soft price action this week. Today we will test the low from last week (SPY $190.80). It is possible that we will test SPY $182 before the bounce begins. I don't feel that we will spend much time at that level. Stick to day trading from the long side and wait for support to be established. There will be an excellent buying opportunity into earnings season and I expect to see us reach SPY $200 in November. . .

Daily Bulletin Continues...