Daily Commentary: December 6, 2019

Scott Green1Option Commentary

Market Gaps Higher On Strong Jobs Report – Wait For the Bid To Be Tested – Don’t Chase

Posted by Pete Stolcers on December 6

The market is within striking distance of the all-time high and we are seeing strength on the heels of a strong jobs report. Positive comments from US/China trade negotiators and a possible USMCA deal are keeping buyers engaged. The market has a pattern of gapping and flat lining the rest of the day. The headwinds will be fairly strong at the all-time high. I believe the backdrop today sets up well for “lottery trades” where we buy calls late in the day just before they expire. We will be looking for these plays in the chat room.

This morning the Unemployment Report showed that 266,000 new jobs were created in November. That was much hotter than expected and the number was inflated as UAW strikers returned to work. I’m always skeptical of the government’s number because of the adjustments they make. ADP reported that 67,000 new jobs were created during the month of November in the private sector and I trust this number because they process payrolls for small and medium-size businesses. ADP was weak. The S&P 500 shot 15 points higher on the jobs number and I don’t trust the move. I won’t chase, I will wait.

Domestic economic growth is healthy and the potential for two trade deals is removing market uncertainty.

The FOMC statement next week will not provide any surprises. Fed officials are content with current policy.

England’s election (December 12th) should favor Boris Johnson and that would cement an orderly exit from the EU. This is also “market friendly”.

Stocks are trading at a forward P/E of 17.5 and that is fairly rich. As long as the rally does not get over-extended we will float higher. A melt up at this level would spark profit-taking.

Swing traders should sell bullish put spreads on strong stocks. We are using Option Stalker searches to find these candidates and I posted a link to my free swing trading video in yesterday’s comments CLICK HERE TO WATCH IT.. Make sure the short strike price is below technical support. Don’t chase stocks. Be patient and let them come in. The market bid is tested every day and we need to make sure that gains are not going to reverse. Once support is established you can scale into your bullish put spreads.

Day traders need to identify strong stocks right out of the gate. The market could rip higher and stall near the all-time high. During the day, look for volume spikes on a 15 minute basis Using Custom Search in Option Stalker. I will be looking for “lotto trades” late in the day. We have the market backdrop we need for this strategy and I will be searching for relative strength late in the day.

Support is at SPY $310 and resistance is at the all-time high.

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