Will The $2 Trillion Stimulus Save The Markets?

If you would have told me 12 months ago that congress would pass close to a $2 trillion stimulus plan I would have thought it was a huge deal. That is a giant number being thrown at markets.

However, considering the market has rallied for months now on hopes of more stimulus, I don’t think this plan will have a as big of an impact as you would think. I’m not saying markets won’t rally early next week in response to this news but with inflation numbers already picking up, this $2 trillion will only add fuel to the inflation fire.

We Saw Signs Of Fear

We saw signs of fear coming back into the market last week as the Nasdaq tech stocks sold off hard for most of the week. We did rally into Friday afternoon as these stocks tried to bounce off the lows. The selling really picked up in response to the move in bond yields.

With inflation numbers picking up, the move in bonds is signaling a slowdown to this pandemic rally.

Next Week Will Be Crucial For Markets.
Is the new stimulus plan enough to calm the fears of the move in rates? We could very well see a sell the news event as we get further into the week since markets have been pricing in this stimulus for months now.

The good news coming out of trading the last week is the return of two way price action.

We have been stuck in a market for the last 12 months that just moves higher each and every week. The selling last week provided a much better environment to work with.

We had huge volume all week with the daily SPY volume passing 100 million shares almost every day. We also saw the ATR (Average True Range) spike over 6.00 which is exactly what we have been looking for.

Looking To Next Week

Going into next week we have SPY right back into a trading range that has been in place the last few weeks. On the upside we have the 390.00 level acting as resistance. Anytime price has approached that level the last few weeks we have seen price reverse back lower. Should that level be tested again next week and break then we will be looking for move back to the all time high at 394.17.

On the downside we have the 50 EMA which is sitting at 380.00 which was recaptured Friday afternoon going into the close. This is a key area of support that needs to be broken on a closing basis if we are going to see the selling from last week follow through to the downside. Should that level break we will be looking at the low of last week around 371.50 as the next area of support.

With the tech stocks overdone on the downside we were expecting a bounce in the near term. We started to see that Friday afternoon as names like AAPL, AMZN, FB, NFLX, GOOGL, TSLA all bounced higher. These are stocks that historically don’t like to selloff for long periods of time. Is the low in on these names? In the near term we would expect a tradable bounce before a deeper pullback starts to kick in.

We have been selling out of the money put spreads on names like AAPL, QQQ, EBAY, and MSFT over the last week looking for this oversold bounce. Friday’s move has definitely helped those positions. We still need one more push higher next week to be able to take some of those open positions off for profits.

Options Recap Video

In this week’s Options Recap Video we take a look at a few of our Overnight Pop Trades that were closed out Friday morning for profits. We have seen 13 winning trades in a row with that service as they continue to provide a nice source of weekly income for us.

We also take a look at 2 trades that are catching our eye for next week’s trading. We cover new trades on QQQ and EA that would benefit from a continued bounce higher next week. These trades are risk defined positions that only tie up a few hundred dollars of capital. Take a look at this week’s video and let us know if you have any questions.

We will be back on Wednesday for our next live options update on Facebook and YouTube. If you have any questions in the meantime feel free to reach out. Mike@netpicks.com

Author: CoachShane
Shane his trading journey in 2005, became a Netpicks customer in 2008 needing structure in his trading approach. His focus is on the technical side of trading filtering in a macro overview and credits a handful of traders that have heavily influenced his relaxed approach to trading. Shane started day trading Forex but has since transitioned to a swing/position focus in most markets including commodities and futures. This has allowed less time in front of the computer without an adverse affect on returns.