We Don't Do Penny Stocks - Morning Market Squeeze

Key Tactical Takeaways:

> Financials, tech and basic materials all led on Monday, but only tech maintains near-term leadership vs. the S&P 500.

> Utilities were actually among the biggest losers during Monday's risk-off session. ... is hugely important support for XLU.

> Despite a 3rd higher low this morning, the $ has yet to signal a short-term trend reversal higher with a close > DXY ....

> The S&P's bullish response to our near-term stop at ...on Monday leaves the bull trend well intact.

> We're looking for an opportunity to take profits on our USO long, while time is running out on our ... long. We'll look to replace ...with another breakout idea in the event it fails to push above ... in the next two days.

Some Quick Thoughts:

Recently, we've actually received two inquiries from trial members about the lack of penny stock ideas on our daily trade sheet. This report will never house penny stock ideas, as they are penny stocks for a reason. This report hosts a variety of trade ideas that cater to those looking to put size to work in trades that either fight time decay (i.e. single leg put or call ideas) or benefit from time decay and volatility (i.e. complex options spreads). Speaking of which, with our DHI bear call spread from early December now roughly 80% profitable because of the ideal sideways action that has benefited this strategy since entry, profit taking on this trade is warranted at any time. We'll be removing DHI from the trade ideas sheet at today's open. In January, we will be rolling out a number of new retail-focused products, one of which will focus on stocks of the $5 to $10 variety.

For the benchmark S&P 500, Monday's opening swoon generated a slightly larger than 1-sigma move on the downside that ultimately bottomed right at our volatility-based bullish near-term stop of .... Perhaps the biggest standout from Monday's action was the VIX, as it actually reversed lower from an early 45% gain to close the session below its volatility-based line in the sand at .... While this action leaves the post-10/29 trend of declining volatility intact, page 8 some of our work from this past weekend's Weekend Macro Press which shows that recent CoT positioning resembles that which has accompanied bottoming processes in volatility throughout history (focus on the green box at the bottom of page 8). Make no mistake; bottoming is a PROCESS, so this information as a timing tool is more blunt than sharp.

As USO was rallying to our tactical target near ... last week, we expressed our concern that the oil market would have difficulty discounting beyond this winter's demand slump like stocks should be able to do. For this reason, after USO's short-term trend turned bearish below ... on Monday, we'll be looking for any test of the recent highs to take final profits on our USO long.

A quick look at the “canary in the coal mine” (i.e. credit spreads) reveals no concerning widening at this time. In addition, the 5-Yr, 5-Yr Breakeven Rate is extending to new post-crisis highs. Although Monday's action was quite scary in the DAX and FTSE 100, these two markets are also holding above key near-term support. With all this in mind, the S&P's current stance above the near-term stop at ... leaves bulls in control.

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