ECB Delivers – Stable Flash PMIs Would Pave the Way For An Earnings Rally

Posted 10:30 AM ET - My Deal of the Year will end Sunday. It includes everything I offer for a year and this will be the lowest price in 2015. If you are interested, click this link and launch the chat. I will answer any questions and I will send you a video that I recorded this morning with real trades. LAUNCH THE CHAT This morning the ECB announced that it will purchase €60 billion in bonds each month and that is the number traders were looking for. Draghi has been paying lip service for years and he finally delivered. This was a widely anticipated move and the S&P 500 was up 18 points during the announcement. Stocks have reversed sharply and the S&P is in negative territory after 20 minutes of trading. This is a bearish reaction. The market has embraced central bank easing to this point. Unfortunately, monetary stimulus is not resulting in economic growth. QE is simply a sugar high and traders are worried about global economic conditions. Flash PMI's will be released tomorrow. All eyes will be on China. Their market plunged 7.7% on Monday when GDP fell to 7.3%. This was in line with expectations, but economic activity has been slipping. China is now the largest economy in the world and it is still the growth engine. If the market can close above SPY $203 tomorrow, earnings should be able to push stocks higher. This rally could be short-lived, but it should last a couple of weeks. If the market closes below the 100-Day MA on Friday, the 200-Day MA will quickly be challenged. A lower high will result and the technical picture will weaken substantially. I sold out of the money put credit spreads yesterday and I will sell more today if the market is in positive territory after a few hours of trading. I am also hedging on an intraday basis using the S&P futures. If the market drops below SPY $203, I am shorting the futures and that is also my stop. My target is SPY $202. That will become my new entry and stop and my target will be lowered to SPY $201. Given my current strategy, you can see that I am playing it safe. The out of the money put credit spreads allow me to keep my distance and to take advantage of time decay. Option implied volatilities are relatively high and I am being fairly rewarded. I like selling put spreads after earnings announcements when the premiums are still fairly rich and the news/reaction is known. Airlines look strong and they are one of the groups I am favoring. I always make sure that there is technical support between the short strike and the stock price. If the stock breaches technical support, I buy back the put spread. As you know from my comments, I am ready at a moment’s notice to hedge. The price action has been very nervous and the character of the market is changing. We are seeing light volume rallies and heavy volume declines. Asset Managers don't believe that they are going to miss the next big rally and the bid is fairly weak. There are times when you can leverage up your options trading and there are times when you have to play it safe. Professional blackjack players vary their bet based on probability and you need to do the same. This is a low probability trading environment. If the market breaks the 100-day moving average, the probability of success will increase. Unfortunately, it will mean that a nasty decline lies ahead. We needed the ECB to ease and they did. Now we need stable flash PMI's. If the reaction tomorrow morning is favorable, earnings should be able to fuel a nice little relief rally. Try to sell some put credit spreads this morning if the price action is positive after a few hours of trading. . .

Daily Bulletin Continues...