The sporting world’s attention is currently focused on the Winter Olympics. National pride is on the line along with individual and team accomplishments. The ultimate reward for the best competitors is a gold medal. Trading is often like a competition against the market. Be careful with your risk, because the agony of defeat can be greater than the thrill of victory.

STOCK MARKET OUTLOOK

The equity indices have been on a bit of a while ride since the start of the New Year. The upside run we saw in 2013 would make the citizens of Pamplona jealous. The equity markets have had a bit of a different start to 2014. As we all know nothing lasts forever, especially moves in the markets.  In a long term view, the bull run may still be on, but if you take a bit of a closer look you will see the were a few speed bumps along the way.

NEW HIGHS/NEW LOWS

Since the start of the year we have seen the S&P 500 put in a new high three times, while making new lows on ten occasions. As of this writing, the S&P 500 index is down nearly 2% since the end of 2013. There have been more sessions with a higher close (18) than lower (13), but the down days have been a bit more dramatic. Fear has always been a stronger force than optimism in the marketplace.

THE FED IMPACT

We’ve seen the first effects of the Fed’s taper to their stimulus program in play. We’ve also seen a smooth transition to a new Fed Chair, and learned she may not be as “dovish” as first perceived. Early smoke signals have given us a clue that the Fed will continue the taper as long as sustained growth continues.  So far that plan has not sent shocks to the equity markets.

DOWNSIDE RISK

As we approach the end of the first quarter I still have concerns for risk to the downside. Tax time is around the corner, and for many investors that means coughing up a piece of the previous year’s gains to the government. This could cause many investors, fund managers, and traders, to take profits so they can write those checks to the tax collector. So far it appears the “debt ceiling” will not be as big of an issue this year, but any further debate about the debt ceiling or more sequester talks will not do any favors to the stock market.

E-MINI S&P PUT

Recent pull backs have seen the E-Mini S&P 500 trade down to 1732, the low for the year to date. The market has recovered to trade above 1800 again (a high of 1823.25 since that low) following a run of 7 consecutive higher closes. A 3% retracement would have the E-Mini S&P trading below 1750 again. I like a bit of an insurance play through the end of the quarter, buying the April E-Mini S&P 500 1750-1700 put spread at 10 points ($500.00) or better. Risk is limited to the cost of entry plus fees and commissions. Expiration is on April 17 so this trade will take us through the first quarter.

WEBINAR

For those interested Walsh Trading holds weekly grain webinars on Thursday’s at 3pm 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. Click here to view a recording of this week’s webinar.

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.

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