Price Compressions Lead To Breakouts – This Will Be Resolved On the Downside

July 30, 2015
Author: Peter Stolcers, Founder of OneOption

WATCH ME TRADE LIVE TODAY. Click the link and it will launch a support chat. Once I get your e-mail I will set you up for the day. You will have access to my chat room where I trade a specific pattern with other members. You will see live trades and I will make money. My last losing day was weeks ago. Sign-up early. I probably won't trade after the first 3 hours. Posted 11:30 AM ET - There is really nothing new to add today so I am going to leave my comments up from yesterday. They provide a longer term outlook. The market will be quiet today and I will probably stop trading early. Stocks should be able to tread water next week. Wednesday, the Fed did not show its hand and the market liked the tone. This was largely priced in and we saw a sluggish rally as predicted. The SPY is one strong day from an all-time high and one nasty day from the 200-day moving average. Prices are very compressed right now. Mega cap tech stocks were the last catalyst and Apple, Microsoft and Facebook failed to deliver. Cyclical stocks are posting results and the reaction has been negative. I don't see anything that will spark a breakout and I will start selling out of the money call credit spreads when this rally exhausts itself. The jobs report and ADP will be in line (220K) next week. This won't spark much of a reaction and these important releases will be a distraction. China is the key. It is the largest economy in the world and the recent market crash has been completely discounted by the market. Wealthy individuals have lost a lot of money and they drive consumption. Non-investors will lose confidence and tighten their purse strings. This market decline could spread to real estate where the exposure is much greater. The PBOC is concerned about inflation and they are not likely to ease. Trillions have been spent in government stimulus programs and economic growth continues to slip. China's shadow banking industry could pose serious credit threats as activity slips. China will post official PMI's Monday. The next big numbers will come out August 12th (retail sales, foreign investment and industrial production). If these numbers are soft, China's market will tank and we will see profit-taking in our market. The domestic bid will be light in August as traders/politicians take time off. A small amount of selling pressure can spark a nasty decline. If China's economy and market stabilizes, our market is likely to chop around. Asset Managers will not chase stocks near an all-time high when an interest rate hike is looming and we will not breakout. I will start selling out of the money call credit spreads when I see signs of exhaustion. I will focus on companies that have exposure in China. I will start this strategy when we close below the 100-day moving average. If the market closes below the 200-day moving average, I will start buying puts. I'm not expecting much action the rest of the week and I am day trading from the long side today. Look for a few more days of bullish price action and use the 100-day moving average as your guide. Price compressions lead to big breakouts. I believe this one is going to be resolved on the downside. . . image

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