August brings us the dog days of summer. The marketplace can be the same way, often seeing slow choppy trading. Be sure you have a good reason to be in the market. Don’t trade just to trade. Everyone needs to step away now and then. Many of the big players are gone on vacation, if they can take a time off then so can you. The markets will be always be there, time with friends and family cannot be replaced.
NO SURPRISES FROM FOMC
The FOMC statement on Wednesday did not contain any surprise to spook the market. As most observers expected, interest rates will remain unchanged at zero to .25%. The Fed reported that “economic activity expanded at a modest pace”, and “labor market conditions have shown further improvement…but the unemployment rate remains elevated”. The last part of that statement may have narrowed market observer’s focus to the job numbers.
The other news most were waiting for the Fed to comment on was the quantitative easing program. After a few back and forth statements over the previous months, the Fed was very clear in the plan for the near future, it will go on at the current pace. The Fed will continue to purchase mortgage backed securities and Treasury securities at a pace of $85 billion per month. Any chance of a September start for tapering seems to be off the table.
FRIDAY’S JOBS DATA
The labor market remains the focus for the week. Wednesday’s ADP employment report came in above the consensus of 179,000, at 200,000. Many investors may look at this a sign that Friday’s job numbers may be better than expected also. The consensus had been looking for nonfarm payroll to be near 175,000 for July. Some prognosticators are now looking for range closer to 200,000.
BULL CALL SPREAD
IF you are bullish on Friday’s employment numbers a bull call spread may be for you. I like buying the August E-Mini S&P 500 1710-1760 call spread at 7 points ($350.00) or better. This is a short term play trying to taking advantage of a potential upside move. Risk is limited to the cost of entry plus fees and commissions. I like this as a short term trade, so I would be glad to exit at 20 points or better. Expiration isn’t until August 16th, but if the trade isn’t in your favor I would cut losses at 3 points. Aggressive traders who want trade multiple contracts should look to scale out in 10 point increments.
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.
