Resistance Is Strong – Last Two Days – Selling On The Close!

Yesterday, the market reversed from an early low, rallied into mid-day and tested the downside into the closing bell. Resistance at SPY 90 has been formidable and the market is struggling to get through it. This morning, a bailout plan was unveiled and the Big Three have been given enough rope to hang themselves. Each needs to demonstrate that major changes have improved the company's viability. The deadline for this proof is March. If the oversight committee is not satisfied with the business plan, they can pull their funds and the auto manufacturer will go bankrupt. Executives, dealers and the UAW will have to make major concessions in the next three months. Trading activity has quieted down. A number of companies are issuing earnings warnings, but those are already factored into the market. The market has not gotten ahead of itself and that is a good sign. However, I would expect the first leg of a sustained rally to be much stronger. We should have been able to blow through minor resistance at SPY 90. As I write today's commentary, the market is on its highs of the day. I would like to see it close above SPY 92. Since bad news is no longer weighing on the market, there is nothing to stand in its way. The Big Three bailout should be viewed as a positive and year-end strength should push prices higher. Asset Managers want to "goose" the market so that they can mitigate some of the losses this year. The trading action is much more orderly intraday and the “air pockets” have disappeared. Don't load up on this rally. Know that you are trading against the long-term downtrend. Selling out of the money puts (or put credit spreads) is the way to go. You can distance yourself from the action and take advantage of time premium decay and declining implied volatilities. For those of you eager to reestablish shorts, bear market rallies can be violent and they move much higher than you would expect. Be very patient before year end. For today, I expect choppy trading with a positive bias. The last two days, the market has declined in the last hour of trading. I would like to see it hold the gains today.

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