August has been an interesting month for trading the equity markets so far. Geo-political events have been on the front page almost every day. We have seen things escalate and then cool down along the Ukraine-Russia border. Actions by Russia have resulted in economic sanctions by the United States and many other countries. Russia has responded with a ban on imports from those countries, reminding many of us of the Cold War standoffs in previous decades.
The U. S. has become involved in Iraq again, on both the military and humanitarian front. Airstrikes on ISIS targets are taking place at the same time the U.S. is trying to drop food, water, and other items for survival to those trapped in by the ISIS military forces. This is also taking place as fighting between Israel and Hamas is increasing.
Market Action
One never knows how markets will react to these situations. So far the S&P 500 has taken some hits, but has been able to climb back up. We did see the market dip to lows that we haven’t seen since May, but climb back up this week, flirting with 1950 again. The talk of hitting 2000 is not as prevalent as it was in July, with mentions of 10% correction taking its place. Global unrest makes most traders a bit nervous, and when traders get nervous they tend to get out and watch from the sidelines.
Key Levels
A 10% correction from 1950 would see the S&P 500 push down to the 1755 area. I don’t think we are headed that low as we approach the end of summer, but I am looking for another dip in that timeframe. I like buying the September E-Mini S&P 500 1925-1875 put spread at 10 points ($500.00) or better. Risk is limited to the cost of entry plus fees and commissions. Full value of the spread at expiration is 50 points ($2500.00), but I am looking for a target exit of 30 points or better. If this market decides to flex its muscles and rally again, I would look to get out for a 5 point loss from entry.
Webinar
For those interested Walsh Trading is holding our weekly grain webinar today Thursday August 14 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.
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