It is always the darkest before dawn and when we hit the rack last night after finishing the Weekly Wrap, it appeared the bears would continue their assault on the bulls.
Futures were down big-time following weak economic data out of China last night as their PMI (Purchasing Manager’s Index) fell to a 3-month low. However, Europe beat PMI beats expectations, as the euro zone numbers came in at 52.1 for December, versus a forecast for 51.9.
Dow futures were down 56 points to 15,645 while the S&P 500 futures were lower by 8 points to 1,760. We mentioned last night volatility could be extreme this week and the 150-point turnaround on the Dow futures ahead of the open this morning is testament that theme could very well play out.
We said the bulls needed a good Monday and they have regained near-term support as we head into the second half of trading. They will need to be very careful not to give back all of their gains as an opening pop and drop back to even, or a negative close, would be bearish.
The Dow is currently up 139 points to 15,895 while the S&P 500 is higher by 13 points to 1,788. The Nasdaq is jumping 30 points to 4,031 and the Russell 2000 is advancing 8 points to 1,118. The S&P 500 Volatility Index ($VIX, 15.63, down 0.13) has traded down to 15.30 but has stayed above 15. This is a troubling sign as the bulls need to get the VIX below 15 by the close. If not, it will be hard to trust the rally.
We would also like to see the bulls clear and hold 15,900 on the Dow; 1,790 on the S&P; Nasdaq 4,050 and Russell 1,120 into the close. If they can’t, stay guarded.
There are some earnings trades we like for this week and while some of them are put plays, we may have to add call options to make them strangle trades given the volatility. We could also sit on the sidelines until we get a definitive breakout or breakdown in the market. We do have a few open trades from our last batch winding down this week and we should be in great shape for our January and February trades once we get more confirmation on where the next trend is headed.
Subscribers, check the Members Area for the updates and stay locked-and-loaded in case we do take action today. There could also be updates for our Weekly Wrap as well.
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