On Wednesday the Federal Open Market Committee announced that they would continue to trim back their stimulus program. Mortgage-backed securities purchases will be scaled down to $10 billion per month (from $15 billion), and Treasury security purchases will drop by $5 billion per month to $15 billion. A surprise to no one was the Fed’s decision to leave interest rates at the current level (0 to 0.25%) and remain low for “a considerable time” after the conclusion of the taper.
The committee reminded us that the labor market will still have the Fed’s attention for future decisions. The comment “Labor market conditions have improved, with the unemployment rate declining further”, came along with “a range of labor market indicators suggests that there remains significant underutilization of labor resources.” Fedspeak translation, things are getting better but not where they need to be.
The latest statement still doesn’t give us any timetable of forthcoming rate hikes. But we did get an idea of how the Fed is viewing the data to make their decisions. The continued policy of low interest rates should still see investors look to the equity markets for a good return on their investment. In the short term, earnings season may have put the brakes on the market rally a bit. While many companies are beating forecasts, a few of the underperforming heavyweights have the ability to pull things down.
Trading Idea
With a short term bearish view, I like buying a put spread. I like buying the Sep E-Mini S&P 500 1940 -1900 put spread at 9 points ($450.00) or better. I am setting an early exit target at 25 points. Risk is limited to the cost of entry plus fees and commissions. If the market continues to rally, I would look to get out for a 5 point loss.
Webinar
For those interested Walsh Trading is holding our weekly grain webinar today Thursday July 31st at 3 pm central time hosted by our Senior Grain analyst Tim Hannagan. Tim has been ranked #1 by Reuters and Bloomberg in 2011 and 2012 for his most accurate end of year price predictions for soybeans and corn. Registration is free and if you cannot attend live, a recording will be sent to your email upon signup.
RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING. THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT. WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.
