Sebastian

Market Stuck In the Mud. The SPY sold off Wednesday after the FOMC statement and the it tested the 100-day MA. It looked like we might finally get a sustained market move now that the Fed has tightened. Yesterday, the market erased all of those losses and it opened right where it was before the Fed statement. Overnight, the futures rallied and now they are selling off. What should we make of all this? These moves are all program generated as firms "roll" positions ahead of quadruple witching. Once the downward momentum was established Wednesday it fed on itself as institutions legged out of hedged positions. The move was "artificial" and the next day they were erased instantly. In fact, if we look at the entire quarter, AVWAPQ which measures the average volume weighted price since the last expiration, the market has moved less than 1% during the entire quarter. Buyers and sellers are in equilibrium and we are stuck. There is a bearish seasonal bias and the market does have a downward sloping trading channel. Interest rates are moving higher and the vast majority of Fed officials feel that another rate hike this year is likely. That is a headwind. Corporate profits have been excellent and that is providing a tailwind. Economic growth is market neutral (solid but not strong). The mid-term elections are creating uncertainty. That's not bullish or bearish, it means investors are going to wait for the outcome. If the market can't breakout, we should sell OTM put premium on strong stocks to generate income while we wait. I will start selling premium next week. Day traders should expect two-sided movement today. The market is right were it was before the Fed statement and we have seen it above and below this level. Volume is the key to any day trade and it must be high. RS/RW are minimum requirements. Since the first move is lower this morning, I would be looking for stocks that were strong on heavy volume yesterday that had nice breakouts. An early pullback and instant support could provide an excellent entry point. Those buyers will return. Use the opposite for shorts. Support is at the 50-day MA and resistance is the high from yesterday.oneoption.com/daily_bulletin…

911 Changed My Life 25 Years Ago - There are a few events in our lives where we remember exactly where we were and what we were doing when the news broke. 911 is one of those moments and it changed my life for ever. Time stood still that day and my priorities in life crystalized. This is when I decided to become a professional trader and 911 is how I start my new book (January release). It shook the nation and tested our resolve. Given how divided we are now, I believe it was the last time we were truly united. The market has been down for four consecutive days and it was due to bounce. The selling pressure has not been heavy and the lower end of a trading channel that started in August was touched. That was also the 50-day MA for SPY and the 100-day MA for QQQ. I suspected that Wall Street would support the 25th anniversary of 911, but I did not trade a bounce. This morning the futures are up 70 points. Interest rates are rising and Fed Fund Futures are pricing in a 70% chance for a rate hike when the FOMC meets next week. That is keeping pressure on the market and I believe that this bounce could be a one-day event. Some of the biggest market rallies have happened when interest rates are rising. The key is that economic growth has to be strong. We need better than 1.5% growth and 160K jobs per month. Both need to double to justify these yields. The bigger issue is that $10T of our debt needs to be financed each year and sovereign buyers (China and Japan) are dealing with debt problems of their own. I don't see yields reversing any time soon even if oil prices retreat. Seasonal weakness still has a month and a half to run and the gradual leak lower is likely to continue. The low yesterday is a key support level and if it fails, bullish speculators will be flushed out. That will lead to another leg lower. The deeper the market falls, the better the buying opportunity will be in November. The mid-term elections will keep a lid on any rally. From a swing trading standpoint, I don't like shorting. The downward price action has been wimpy and we have seen big bounces. I prefer to sell OTM puts during the drops on the strongest stocks and I like selling puts in AI stocks here. Make sure they expire in less than three weeks. When the bounces happen, it takes one week for those to stall out and another week for the market to fall back to the low. That is two weeks worth of time decay. From a day trading perspective, I would buy AI stocks (chips, networking, power and memory). We could see a nice bounce today. Make sure the early gains hold. We do not want to retrace more than half of the gap up. A wimpy move lower in the first 30 minutes is our ideal set up. Find relative strength and buy those stocks. Once the bid check is over we want to see the market take out the high of the day with ease on decent volume. That type of price action would suggest that the move will be sustained and that you can ride those trades. I would NOT hold these day trades overnight. Support is at the low from yesterday and resistance is at $769. We will never forget!

Is It Safe To Buy This Market Breakout? This is a legitimate breakout so until we have evidence to refute that, we treat it as a bullish event. This is how we want to breakout. When the market has been coiling like a spring, it will release like this. OTM call sellers were squeezed by that breakout and they fueled the move Tuesday. The sooner the market can take out the high from last week, the more bullish it is. We want the halfway point of the green candle to be preserved. The test this week will come when the CPI and PPI are released. What would shift me back into a neutral/slightly bearish bias? A quick drop below the open of the long green candle from last Tuesday with follow through. That would signal that this was a false breakout and a buying climax. In my market forecast from May, I felt that we could test $780 on SPY the first week of August. This coincides with a H+ trendline and a measured move. Economic conditions are soft (jobs report and Q2 GDP) and yields remain high. We are entering a period of seasonal weakness. I shifted my bias prematurely so I missed this breakout, but I am perfectly fine with that. How am I trading this? I would keep trades short-term and favor the long side. This is a pivotal week. If we preserve the green candle and take out the high, I will add to starter longs. If we erase that long green this week, stocks with RS should hold strong. I will exit and take small losses and then focus on longer term shorts. It will take sustained selling pressure for me to add to those starters, and it would be typical for that to happen if this is a buying climax. That would flush out bullish speculators and accelerate the selling pressure. There are a couple of examples of a buying climax after a compression that you can reference. December 29, 2021 is one and February 19, 2025 is another. We are likely to see a nice move during the next two weeks. Support is at $763.60 and resistance is $777.