This week’s job numbers might get the fine tooth comb treatment. Traders and market followers will be looking closely to see if there is any data that will give the Fed reason to take action. Many traders and investors are sticking to their guns and looking for a rate hike at the next FOMC meeting. Others have backed off their earlier predictions and are looking for the Fed to maintain its current course. Whatever the prediction, both sides will have a sharp focus on the numbers Friday morning.
After getting knocked a bit during the most recent version of the Euro/Greece crisis, the equity markets have had a bit of a bounce. They haven’t reversed trend into a full bull market, but they have held their own and showed some strength against some tough adversity. The S&P 500 has been able to make another visit above 2100 this week, after flirting with 2050 to end the month of July. Lately the market has given me the feeling that it wants to trade the range, from 2040 to 2120.
As we approach the end of summer and head into September, I wonder where the S&P is headed. Personally, I don’t think we will see a rate hike by the Fed in September. That should be a viewed as neutral to bullish for the market. At the same time history has me concerned of a downside move. October gets all the headlines when it comes to crashes and sell offs, but a lot of those moves have started in September.
Thinking about a possible move down heading into September, I am looking at a put ratio spread to take advantage of the possible sell off, or to be used as protection against long positions. I like buying the E-Mini S&P 500 2000-1950 1 x2 put spread (buying one of the 2000 puts, selling 2 1950 puts) at even money. There is unlimited risk on the naked short 1950 put if in the money at expiration, but we will have picked up 50 points on the 2000-1950 put spread, so break even is with the futures price at 1900. I am setting an early target exit of 30 points. If the S&P doesn’t move downward towards 2000, the options will expire worthless. Please be sure and check margin requirements to see if this trade is suitable for your account.
For those interested Walsh Trading is holding our weekly grain webinar Thursday August 3rd, 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.
