Market Battle Is Being Waged – Winner Will Be Known This Week – Bears Have the Edge

Posted 10:15 AM ET - Yesterday, the market staged two massive intraday reversals. Each one was greater than 20 S&P 500 points and it is a sign that buyers and sellers are paired off. The battle is being waged and we should know the winner this week. We are in a five-year bull market and the SPY is within striking distance of the all-time high. Picking "tops" is foolish and that is why I am scaling into put positions if technical support levels are breached. As I mentioned in yesterday's comments, expect to take some heat. I bought puts at SPY $188 last week and I bought some more when SPY $186 was breached yesterday. I will add at $184.50 and $183. My stop is SPY $189. In the last two months we have seen a rally into the jobs report and a decline after the number. I believe that pattern will repeat and the backside could be nasty. Tomorrow, ADP will be released. Analysts are expecting 215,000 new jobs in the private sector. If we hit that number, the market will be able to tread water. Anything above 250,000 will spark a rally and anything below 180,000 will attract sellers. Chicago PMI and the FOMC statement will also be posted tomorrow. The Fed will continue to taper, but they will soften the blow by stating that sluggish conditions could prompt them to pause. This is a bittersweet statement and it should not spark much of a reaction. Russia halted some of its military exercises on the Ukraine border and troops returned to their barracks. Some analysts feel this is why the market rallied late in the day Monday. The notion is that economic sanctions are starting to work. I am skeptical. The market has shrugged off the conflict and I believe yesterday's price action has more to do with a market transition. China's provinces reported GDP and the results were worse than expected in 30 of 31 regions. The PBOC said that it won't reduce bank reserve requirements. That means fiscal stimulus will have to carry the load and it won't bear fruit for many months. I still believe China will play a major role in the upcoming market correction. Earnings season has reached the halfway point. Profits are up 1% and revenues are up 3%. This news won’t excite investors when stocks are trading at a forward P/E of 16. The strongest companies have posted results and they were not able to force a breakout. Optimism will start to wane in coming weeks. Pharmaceuticals, utilities and REITs (and bonds) are performing well. This suggests a flight to safety. I don't see leadership from any other sector. Look for two-sided trading today. When a directional move stalls, expect a reversal. This is a great day trading environment. Look for opportunities to buy puts, but keep your size small until the Unemployment Report. When technical support levels are breached, add to your put positions. We are trading against a five-year uptrend – don't jump the gun. We need proof that the market is rolling over before we get short. If I am completely wrong and the market breaks out to a new all-time high, I will stop my positions out and watch from the sidelines. . .

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