Market Alert: Danger Ahead – Market Is Below the 100-Day MA – Hang On To Your Put Options

February 2, 2015
Author: Peter Stolcers, Founder of OneOption

Today's options trading strategy - I am buying put options this morning. Now that we are below the 100-Day MA, this options trading strategy has the greatest profit potential. The probability of success is high and it will increase every day we are below it. I will use SPY $201 as my stop on a closing basis. Once support cracks, we will hit an air pocket and the profits will come quickly. Make sure to watch the free online course I posted in the right margin of my blog. This is one of the most powerful options trading strategies you can use. Posted 10:40 AM ET - Last week the SPY slipped back below the 100-day moving average. Volatility has increased and the battle line between buyers and profit takers has been drawn. The market rallied back to unchanged last Friday and then the S&P 500 lost 30 points in the last hour of trading. I still believe the next big move is down. In the last few years, the market has briefly tested the 100-day moving average and it has instantly rebounded to a new all-time high. That changed in October. For the first time in two years, the 200-day moving average was breached. Even with seasonal strength working in our favor, the rebound barely took us to a new all-time high. In the last two months we have tested the 100-day moving average with greater frequency. Rallies have come on light volume and declines have come on heavy volume (distribution). These are all bearish developments. Five-year bull markets die hard especially when they are backed by central banks. Two weeks ago the ECB fired its "bazooka" and the market did not care. The FOMC statement last week was dovish and stocks declined after the release. We could be seeing a huge fundamental change where quantitative easing is no longer attracting buyers. Monetary stimulus has not sparked economic growth. Earnings season was our last hope. The results have been somewhat disappointing and the guidance is cautious. Apple, Google, Netflix, Amazon, Facebook, Alibaba, Intel and Microsoft are behind us and they failed to spark a market rally. ISM manufacturing was released this morning (53 vs 54 expected) and now we have to question domestic economic growth. Durable goods missed last week and GDP missed as well, Jobs will be steady around 220K, but a good number won't spark a rally. On the other hand, anything below 200K could prompt more profit taking. Greece has not toned down its rhetoric and they need their next tranche in a few weeks. The discussions will be heated and this will weigh on the market. Conflict in the Ukraine is escalating and the US might send defensive weapons. Additional sanctions against Russia are also being considered. This morning, the Wall Street Journal reported that consumers are not spending their gas savings. That does not bode well for retailers. I might know one reason everyone is so tightfisted. Last week, I got my "happy letter" from my health insurance company. My premiums will go up $3000 this year. I'm still waiting for all of the savings I'm supposed to be reaping from Obamacare. The fundamentals and the technicals are deteriorating. Buyers will be tested and with each passing day the bid grows weaker. If the market spends a few days below the 100-day moving average we will test the 200-Day MA. Buyers will pull their bids and we will hit an air pocket. Buy puts and use the100-Day MA as your stop on a closing basis. Expect to take some heat since you are trading against a five-year trend. Once we break key support, the profits will come quickly. I expect the SPY to close below the 200-day moving average this week. . . image

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