No Breakout – Downside Will Be Tested – Sticking With My Puts

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

I have been searching for shorts and I have my list. CLICK HERE TO TAKE THE FREE TRIAL. You will have access to my bearish trades and an exclusive chat room. Posted 10:20 AM ET - The market has been flirting with an all-time high, but it can't punch through. Buyers and sellers are paired off and they are waiting for a catalyst. Major economic releases are likely to push us one way or the other. ISM services was posted thirty minutes after the open and the number was good. ADP will be released tomorrow and we have the jobs report on Friday. Analysts are looking for 215,000 new jobs in April. I have no idea of how the market will react if we are below 200,000 or above 250,000 I believe a number below 200,000 could be good for the market. Even though most analysts believe that the Fed will not hike before September, traders are more concerned about a quarter-point rate hike then they are about deteriorating economic conditions (I am more concerned with weakening conditions). I am bearish and my trading system is on a sell signal for 75% of the S&P 500 stocks. This comes at a time when we are a few points from the all-time high. I'm not going to ignore this warning sign. I am long puts on a handful of stocks that are relatively weak. They remained below resistance yesterday and I am going to stick with those trades. If the market trades below SPY $210, I might add a few positions. However, I won't get aggressive until I see a close below the 100-day moving average. We are points away from an all-time high and we are one bad day away from the 100-day moving average. This price consolidation phase is going to lead to a big move and my indicators tell me it will be on the downside. Bulls tried to force a breakout Friday and Monday to no avail. The downside will be tested today. China was down 4% overnight and Germany had a 3% overnight decline last week. That could be a sign that stocks are tired. US stocks are trading at a rich forward P/E of 18 and there is room for profit taking. I am not looking for blood in the streets. The market is at the upper end of a seven month range and it has not been able to breakout. I am just looking for a move to the lower end. Last Monday I bought some calls on the intraday breakout. The rally stalled and stocks reversed. I quickly realized that I had no staying power. I was trading against my bias and I quickly puked my call positions and shorted some stocks. That reaction helped me avoid losses and it forced me to get a grip on reality. I don't have any faith in this rally and I can't get long. I will focus on the short side and if the market breaks out, I will cover my shorts and watch from the sidelines. My short positions are coming back nicely this morning and with a little help from the market today, I should be back to break even. If you are flat, take short positions if the market is closing below SPY $210 today. Be prepared to add on weakness. If the 100-Day MA fails ($207), we are likely to test the 200-day moving average. This is a low probability trading environment. Keep your size small and let this choppy back and forth action run its course. When we have a bona fide breakout with a series of closes above the high, we can think about getting long. When we have a breakdown below technical support, we can think about getting short. Until then, this is nothing but noise. . . image

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