There are four teams remaining in the NFL playoffs. If you follow any of the coverage leading up to this weekend’s games, you are sure to hear about the level of play by the quarterbacks as well as a lot about all coaches involved.
IT’S LIKE TRADING
Preparation is key for all the teams every week, maybe even more heading into the conference championships. After preparation it all comes down to execution and performance on the field, the teams that do it best will advance and do it one more time.
The same can be said for trading. If you prepare and stick to your game plan, you should be in good position to come back and play again.
ECONOMIC DATA
Job numbers continue to be the central storyline for those closely following along with never ending saga of the economic recovery. Last Friday gave us the first Employment Situation data for the year. At first look the reports weren’t too good. Nonfarm payrolls came in at 74,000, well below the consensus expected 200,000. The unemployment rate dipped to 6.7% for December (down from 7.0% in November), but much of that was due to a large drop in the labor force. Obviously not good news for the equity market….or maybe not.
At first glance last week’s data doesn’t exactly show signs of a strong economy. After a brief digestion of the data, many investors and traders had a different thought. The negative data will probably slow down or delay any further planned tapering by the Fed to their current stimulus program. In other words, the Fed’s spigot is still open and we will see a steady flow for a little longer than we thought a few months ago. This morning’s Jobless Claims came in at 326,000, right near consensus of 327,000, but that number isn’t going to change anyone’s view from last week.
SHORT TERM BULLISH PLAY
It looks like the possibility of a further taper by the Fed is on hold for now. Although I am still looking for a retracement towards the end of the first quarter, I think the market can still move higher in the next few weeks. I like a shorter term bullish play, buying the February E-Mini S&P 500 1875-1900 call spread at 5 points ($250) or better.
Maximum risk is defined to the cost of entry plus fees and commissions. The maximum profit is 25 points (the difference between the two strikes), but I would set an exit target at 15 points. If you are able to trade more than one contract, I would look to scale out at 5 point increments from that level. The February options expire on 02/21/14, so we have a bit over a month to play this trade. If the market decides that the run up is over, I would look to limit a loss to half the cost of entry.
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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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