Daily Commentary: March 13, 2024

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Here’s the Trading Game Plan

Posted by Pete Stolcers on March 13

Swing traders focus on these options strategies. Day traders, think like an apex predator. The kill is big and it will feed you for a few days.

PRE-OPEN MARKET COMMENTS WEDNESDAY – The market is in a steady grind higher. It advances and then pauses. That is the pattern and I don’t see any speedbumps, not even the FOMC a week from today. The Fed has been very vocal about “higher for longer”. When the economy is strong, jobs are plentiful, credit risk is low and inflation is a little higher than desired, there is no reason for them to cut rates.

The market is addicted to easy money, but a market rally that is based on growth is healthier than a market rally that depends on monetary easing. Some of the biggest market rallies have taken place when interest rates are relatively high and when growth is strong.

The price action is all that we have to watch and there have not been any dips. That in and of itself tells us the market is going higher. Before any dip can gain traction, buyers gobble up supply. That is how we get nice orderly, tight trading patterns.

One of the concerns has been that the rest of the world has poor economic growth. China posted better trade numbers this week. I still feel they have deep seeded issues that will take many years to resolve, but in the short-term it is encouraging news. I have trust issues with China so I take their numbers with a grain of salt. Japan and the EU are flat (no growth). We need to watch for signs of improvement. Any uptick in activity will go a long way.

Another issue has been the lack of broad-based market participation. We can see that in an overlay of the SPY and RSP (equal weight index for the S&P 500). The participation early this year was poor and tech giants were fueling the rally. Now we can see that the breadth is improving. That is a sign that this rally will continue.

As long as the market continues on this path, the grind higher can last for a very long time. When we see a day or two that post significant gains, we can expect a pause for a few days and the bid will be confirmed (small dips). Once we go through that process, we can expect another leg higher. I am not expecting any big surprise drops.

There are only two current concerns. One is technical and one is fundamental. The technical concern would come on stacked consecutive long green candles and heavy volume that propel us to $525 in a few days. That would signal a buying climax. In that case, the market got ahead of itself and we could see a heavy round of profit taking. As long as we continue to grind higher, no worries. The second concern would be a series of weak economic data points. The Unemployment Report is the key number to watch along with ISM manufacturing and ISM Services (the more important ISM number). Forget about “good news is bad news”, we want strong economic growth and we want the Fed to stay sidelined.

Stay long and look for rotation into other sectors. Tech is still strong and AI is going to provide a nice tailwind for those stocks. From an options trading standpoint, some of the boring old stocks with very low option IVs are going to start moving higher. Look for breakouts and buy long term ITM call options with a high delta. These swing trades can produce profits equal to or greater than the fast moving tech stocks that have high option IVs. For tech stocks I prefer to sell OTM bullish put spreads.

From a day trading standpoint, strike when the iron is hot. When we have a bullish trend day, get aggressive. Then expect to sit on your hands for a few days. Once the bid has been confirmed, start watching for another bullish trend day. You are an apex predator. The kill is big and it will feed you for a few days.  

Support is at $513 and resistance is at the all-time high.

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