What Does S&P 500 At 2000 Really Mean And How Can You Trade It?

Traditionally September is a month that sees a decline in the equity index markets. When markets put in new record highs, we often see a retracement from those levels. On the flipside, investors and market players have heard from the Fed and have a better picture of the Fed’s future plans. The shrinking of the stimulus program along with the hint of changing interest rates next year has not scared anyone away from the equities.

Numbers Stick

We often pay attention closely to numbers. It doesn’t matter if it is sports, dates, or markets, certain numbers have a way of sticking in your head. If you are a history buff, the numbers 1066 and 1588 may mean something to you. If you are a baseball fan 61 and 755 were numbers that seemed like they may never be reached again. In American college sports 88 and 47 represent great levels of achievement and success. In the S&P 500 2000 represents a number we have never seen, until this week.

The S&P 500 closed above 2000 for the first time ever this past Tuesday. That marked the 30th time this year that the index posted a record close. The index is nearly 300 points higher from a year ago, as low interest rates help steer investors into the equity markets. I suppose 2000 is a significant milestone, but I’m not quite sure what it means. Nobody sent me a card or asked to go out and celebrate, so it might not be that big of a deal. The 2000 print does grab my attention and has me taking a closer look at how much further this market will go.

Trade Idea

I think we can see a market move in either direction heading into next month, but I see greater risk to the downside.  I like buying the September E-Mini S&P 500 1975-1950 put spread at 6 points ($300.00) or better. The trade is long premium so risk is defined to the cost of entry plus fees and commissions. Maximum value of the spread is 25 points at expiration; I am setting an initial target of 16 points to exit. If the upside run continues, I would try to limit a loss to 4 points.

Webinar

For those interested Walsh Trading is holding our weekly grain webinar today Thursday August 28th 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.