Does October Spell More Downside For the Equity Market?

The equity markets have held their own lately after getting beat up a bit at the end of August. The Fed sat tight, which didn’t come as a surprise to many, but the reason why may have. The Fed pointed to the global economy and world markets as some of the reasons for maintaining current policy.  After many months of speculation, the question remains the same for a rate hike; if not now, then when?

I don’t see any action happening before year end. December is a bad time to change course. That forces a glance towards the first quarter of 2016. You could argue that if the Fed gets the data they are looking for, they will take action. I will remind you that 2016 is a Presidential election year. Political views aside, the Fed is usually pretty tame and reluctant to take action during an election year.  Near zero interest rates are hear and probably will remain for quite some time.

Now that we have gotten past the big September FOMC, we can get back to seeing what the markets can do. I think we are looking at some further movement to the downside as we head into October.  I like buying the October E-Mini S&P 500 Week 1 1940-1900 put spread at 10 points ($500.00) or better. Risk is defined to the cost of entry plus fees and commissions. Max value of the spread with both strikes in the money at expiration (10/02/15) is 40 points. I am setting an initial target exit of 30 points; if the market heads higher I would look to limit a loss to 5 points.

For those interested Walsh Trading is holding our weekly grain webinar Thursday September 24th, at 3:30 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.