The sell-off this morning on the news that the Federal Reserve will begin scaling back Quantitative Easing has the market direction in a bit of a tail-spin. I have put in place my usual Spy Put Options to benefit from the downturn, but I am careful about Put Selling against my watch list of stocks until I see evidence that the market direction pull back will not become too severe. Investors are always nervous and stocks often plunge faster than they rise and they can collapse farther than first estimated.
1600 On The S&P 500 – First Line of Market Direction Resistance
The first line of market direction resistance is at 1600 on the S&P 500. This is major resistance for the market direction. The market direction down this morning has been continually testing the 1600 level.
The 1600 level as you can see in the chart below is critical support. The movement below the 50 period moving average means the market direction has a very good chance of breaking lower and reaching the 100 day within one or two days.
If 1600 Breaks for Market Direction
1600 if it breaks means it will become resistance and this will end the recent rally and probably commence a severe correction into the summer months. The mood of investors has definitely taken a hit from Bernanke’s recent announced upcoming actions. But this is easily a two-edged sword as the move lower could become overdone but if the Fed is correct in their belief that the economy is improving, then the quarterly earnings by the fall may indicate that stocks can stand on their own.
Put Selling On Hold
Until we see the market direction be clearly resolved I will be closing many positions that are profitable as I did yesterday on half of my Apple Stock naked puts, etc., and then wait to see if the 1600 level breaks and the market moves quickly to the 100 period moving average. I will be posting more as the market direction issue unfolds. Right now the main income generating is coming from the market direction portfolio which is short the market and my Spy Put Options. This is still a bull market and surprises to the upside will happen in any oversold condition.
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