Don’t Be Fooled By the Market Bounce – More Selling To Come – Buy Puts On Weakness

In the right margin of my blog you can register for my FREE online course on Bullish Put Spreads. This is a very powerful options trading strategy and you should learn it. Today's Options Trading Strategy - The S&P 500 is down slightly before the open. Ideally, we will rally back above SPY $207. If the move holds, I will stay sidelined over the weekend. However, if the market falls back below SPY $207, I will buy April put options and I will use $207 as my stop. If we close on a weak note, I will hold my puts over the weekend. The market could simply drift lower from the open. If that happens, I will buy puts if SPY $206 is breached and I will use that as my stop. I am going out to April to lessen my exposure to time decay. Posted 9:20 AM ET (Pre-Open) - Yesterday, the market staged a nice rally and analysts had plenty of reasons to explain it. Most of them don't make any sense and I still feel that the 100-day moving average will be tested soon. Traders will be nervous ahead of the FOMC statement next week and quadruple witching will add fuel to the fire. Retail sales fell .6% and some analysts were saying that these weak results will keep the Fed from tightening. This is ridiculous and weak retail sales do not justify a 30 point S&P rally. The bad number could have been dismissed due to horrible weather. Other analysts pointed to the .25% rate cut in South Korea. This could've been a catalyst, but it does not explain the follow-through. We’ve seen plenty of global rate cuts recently and they are no longer a surprise. Some analysts cited the rally in the Eurodollar. This was a one-day move and the long-term trend is still intact. Using this reasoning, our market would have been tanking the whole time the Eurodollar was selling off. We are only a few percentage points off of the all-time high. I'm not going to try and explain every wiggle and jiggle. In my comments I've noted that five-year bull rallies die hard. This was simply a snapback rally after heavy selling. These moves have been typical in the last five years and that is why my trade allocation is much smaller on the downside. When I am short, I know that I am trading against the trend and that I can expect to take some heat. Yesterday I exited my put options when the SPY traded above $207. I made nice money on the trade and I was not going to let this turn into a loser, no matter how bearish I am. I have a clean slate and I'm ready to get short again. I still believe we will see another round of selling. Credit issues in Greece and Russia will be problematic. China's economy continues to slip and this is my greatest concern for 2015. All eyes will be on the FOMC statement next week. They will remove the word "patient", and they will find a way to soften the blow. The Fed does not want to fuel the dollar rally. Yesterday's rally did not mark a capitulation low. We will see more selling before that happens and I'm looking for opportunities to get short. Wait for weakness and buy puts. . .

Daily Bulletin Continues...