Tone In DC Has Changed. Buy A Few Puts and Hold Over the Weekend. Add If SPY $140 Is Breached.

November 30, 2012
Author: Peter Stolcers, Founder of OneOption
Author
Pete

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This week, the snap back rally pushed the market back above the 100-day moving average. In the last 2 days the momentum has stalled and stocks looked tired.

The tone in Washington has changed and politicians are preparing for battle. Republicans put tax hikes on the table and they waited for a response. Yesterday, Treasury Secretary Tim Geithner proposed that all of his cuts would come from $300 billion in Medicare savings. He even proposed a $50 billion stimulus program. This counter offer was a joke and the negotiations will stall.

Senate Majority Leader Harry Reid wants to change Senate rules so that Republicans can’t filibuster. This power play will antagonize the GOP and the likelihood of going over the cliff increased this week.

Democrats might think that they have the upper hand because they can postpone spending cuts. However, we will bump up against the debt ceiling in a month or two and Republicans will dig their heels in.

Politicians will postpone decisions that involve pain as long as possible. Eventually, the market will force their hand. I believe we are due for a nasty market decline.

Our economy is flat-lining and major releases will hit next week. Sandy will be blamed for any shortfall and I don’t believe the numbers will have a lasting market impact.

Expect wild swings the rest of the year. Every market move will be tied to comments out of DC.

This is a time to be nimble. These whip saws typically last a few days. Maintain stops and set profit targets.

I am much more interested in trading the downside than I am the upside. When we get a nice rally I am day trading stocks from the long side. I am out by the end of the day and I don’t want bullish overnight exposure.

I am buying puts today and I will add to the position if we break below SPY $140 next week.

Given the rhetoric this week, I don’t believe a deal will get done before next Friday. Stocks staged a nice rebound and anyone wanting to reduce risk will unload stocks ahead of big releases next week.

The market feels tired and I believe we will close on the lows today. Buy a few puts and hold over the weekend.
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