Manage Profits On Put Positions. Exit If No Afternoon Selling.

June 13, 2013
Author: Peter Stolcers, Founder of OneOption
Author
Pete

This is the first organized round of selling we’ve seen in 2013. The market tried to rebound last week and sellers quickly resurfaced. A retest of the 50-day moving average (SPY $161) is likely before the FOMC meeting next week. If that support level fails we will test SPY $159.

I am not looking for a nasty decline, just a normal correction. The S&P 500 has rallied more than 25% in the last year and it is due for a rest. We are headed into the summer doldrums and the SPY will trade between $159 and $168.

Global economic conditions are slipping (Europe, China and the US) and central banks will remain accommodative. Activity needs to improve for the market to push higher. I don’t see that happening for a few months. Initially traders won’t like higher interest rates, but they will embrace the move if growth is steady.

European credit concerns have plagued the market the last few summers. We won’t have that dark cloud to create volatility this year and we could be in for a boring stretch.

Asset Managers will buy dips, but they won’t chase. They will wait patiently for signs of a sustained recovery.

The news is very light until the FOMC meeting next week. It could strike a nerve and I expect to see some selling.

I bought puts yesterday morning and I added to positions when the market went negative. If you took my advice, you are making money.

I took profits on half of my position this morning and if I don’t see selling this afternoon, I will exit the rest of the position. I have nice profits and I don’t want to fight the long-term uptrend.

As I’ve been mentioning, you have to buy puts into rallies when the momentum stalls. Exit positions when the selling pressure is heavy.

We will not be able to hold short positions for extended periods of time until major technical damage is done. That means we need to trade below a significant support level and we need to build a series of lower highs. We are starting to see that, but we need more data points. Until then, trade the range.

If the market dips to SPY $159 next week and it bounces, that will be a buying opportunity.

Take profits on put positions if you don’t see afternoon selling.
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