China’s Flash PMI Was Weak – 200-Day MA Could Be In Play Now

July 24, 2015
Author: Peter Stolcers, Founder of OneOption

SEE US MAKE MONEY IN THE CHAT ROOM TODAY. Take the free trial and log into the website. We all trade 1 specific pattern and we do it VERY well. Posted 9:30 AM - Typically, the market rallies during this stretch of the earnings cycle and we should have challenged the high this week. That did not happen and a breakout is unlikely. Look for nervous price action heading into next week's FOMC meeting. Google, Netflix and Amazon knocked the cover off of the ball. Expectations for Apple were very high and they posted an excellent number, but it wasn't good enough to attract buyers. Bullish sentiment for Apple was extremely high heading into the number and the pullback took some of the “fluff” out of the stock. Microsoft took a big write-down and that prompted a selling there. Overall, tech should find its footing. Financials are also performing well. The results have been good and the potential for a rate hike in September is keeping buyers engaged. Oil prices are plunging and this will keep pressure on energy stocks. Industrials are also week and we will see another round of selling today. China's flash PMI came in very light. This is the lowest reading since March of 2014. You hear me reference China often and if we correct, it will be the source. Economic conditions are tenuous and their economy is filled with excess after decades of expansion and government subsidization. Their shadow banking industry could raise credit concerns. It is still premature to hit the panic button, but China needs to be monitored closely. The Fed will not show its hand next week. Stocks will drift lower into the FOMC statement and they will bounce on the release. The Fed will be in recess the next six weeks and it does not want to spook the market. They will have additional time to monitor economic conditions in China. Initially I thought that the 100-day moving average would be preserved through August option expiration. Now I need to lower that target to the 200-day moving average. Prices are compressing and these two moving averages are only 30 S&P 500 points apart. That is basically one trading day. After August option expiration, fear will creep into the market. The September FOMC meeting will draw closer and rate hike worries will surface. If China's economy continues to slip, we could breach the 200-day moving average. I am not overly concerned for the next few weeks. Swing traders can distance themselves from the action by selling out of the money bullish put spreads on stocks that have reported strong earnings. In particular, look for breakouts and use that breakout as your stop. This is a fairly neutral strategy (if you go 1 standard deviation out of the money) and you'll be able to take advantage of time decay. I have been day trading and my overnight risk is small. I have been able to find excellent opportunities and I don't have to worry about overnight price movement. There is no follow-through and many stocks that "pop/tank" rest for a few days before continuing the move. Look for soft price action today. AMZN and SBUX will keep a bid early, but I believe China's flash PMI will push us lower. The 100-Day MA is not far away and if we trade below it late in the day we will drift lower into the close. . . image

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