Market Lift-off – ECB and Flash PMIs Were Bullish. Earnings Will Push Stocks Higher

January 23, 2015
Author: Peter Stolcers, Founder of OneOption

10:20 AM ET - This short video contains real trades from yesterday SYSTEM MAKES IT EASY TO FIND TRADES Look at the trades from Wednesday's webinar WATCH THE OPTIONS WEBINAR Subscribers are making a killing - join us. Yesterday, the ECB announced that they will purchase €60 billion in bonds per month. This QE was widely anticipated and Draghi did not disappoint. Early jitters were quickly shaken off and the market surged higher. This morning, flash PMI's came in better than expected. Europe was relatively strong (52.2) and China (49.8) was better than feared. The market got the news it needed on both fronts and earnings season should fuel a relief rally. GE posted 4% earnings and revenue growth this morning and we will hear from other industrials on Monday. Apple will announce after the close Tuesday, Facebook and Alibaba will post Wednesday and we will get Google and Amazon on Thursday. The earnings releases will crank up substantially next week and the results should be positive. The FOMC will release a statement Wednesday. The tone should be unchanged and the new keyword is "patient". It will be difficult for them to tighten since the rest of the world is easing. The dollar has skyrocketed and any further climb will start to impact exports. Greece will hold elections next week and the anti-austerity party (Syriza) is expected to win. We should prepare for heated ECB/IMF negotiations over the next few months, but I don't believe this event will spoil the rally for the next couple of weeks. My preferred options trading strategy in this climate is bullish put spreads. I have been selling out of the money put premium and I added new positions when the market recovered yesterday. The surge late in the day provided extra cushion. I am looking for stocks that have defined support and that recently triggered a buy signal on my system. I am selling put options below technical support and I am buying put options farther out of the money to limit my risk and to reduce my margin requirement. If technical support is breached, I buy back the spread. This options trading strategy is neutral to slightly bullish. Since I have many different positions and since options spreads have two legs, it is more efficient (commissions, transactions, bid/ask spreads) for me to hedge my portfolio intraday using S&P futures. If the market declines, I can quickly hedge my aggregate position. If the market is flat or moving higher, no action is required. Once time has elapsed and time decay has whittled away at the premiums, the put spreads are easier to manage. If the stock moves higher, the option premiums also shrink and I have more breathing room. I never hold these positions over earnings announcements so I monitor the calendar and buy them back before the number. After a huge run yesterday, the market is a little soft this morning. I am expecting prices to stabilize after solid flash PMI's. I will probably sell a few more put spreads this morning, but I have about 40% of my capital allocated at this time and I'm comfortable with my current position. If you like to buy call options, look for stocks that have been in an uptrend and that fell into a tight trading range during the market decline. The best candidates will be breaking through horizontal resistance. SWKS is a good example of the pattern I'm looking for. Use the breakout as your stop and exit the call options if that price level is breached. The price action over the next two weeks should be bullish and call buying should work well. Market support has been established and earnings season push stocks higher. . . image

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