Summer is officially over (thank goodness for football) and school is back in session. This time of year is a good reminder to check your trading plan and make sure you are sticking to it. Trading is something that requires focus, attention, and preparation. Stay focused, stay vigilant in your plan and limit your distractions. The same rules apply as when you were a kid, the market is not going to give you a second chance because the dog ate your homework.
MORNING DATA
Ahead of Friday’s U.S. employment situation numbers, we got a bit of a teaser with weekly jobless claims and the ADP employment report.
Jobless claims came in at 323,000, down 9,000 from the previous week. The 4-week average also dipped to 328,500 (down 3,000), a new low for the economic recovery time frame. Not the greatest of numbers, but a small sign that the economy is improving at a slow rate. Taper on.
The ADP report showed an addition of 176,000 jobs in August. Not a bad number but many prognosticators had been looking for 185,000. The July number had a small revision from 200,000 to 198,000. The concern here is that the trend is moving down rather than up. If that trend continues tomorrow, it will make it tougher for the Fed to make any policy changes. Taper off.
BE SMART
I’ve never been a big fan of tying to “play” a number or release. The odds are stacked against individual traders trying to get the best of the big players. Banks, hedge funds, and other large market participants have more chips to play with at the table. They often sit and wait for number days to reverse large positions or put on new ones. You don’t want to get stuck on the tracks in front of that train.
TRADE WITH DEFINED RISK
With this morning’s mixed news, and the job numbers tomorrow, I’m only interested in trading with a defined risk. Right now I like buying the September E-Mini S&P 500 1700-1600 strangle at 9 points ($450.00) or better.
Risk is limited to the cost of entry plus fees and commissions. I am looking at this as a shorter term trade, looking for the market to have some volatility in either direction. If the numbers come in near consensus, I don’t expect much movement and would look to exit with no more than a four point loss. If the numbers come out better or worse than expected, I look to have a target exit near 19 points. The September options expire on 9/20/13, so you have some time to stay with it if the trade goes our way.
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.
