The ECB (European Central Bank) cut interest rates this morning in an effort to fend off deflation. This action came as a bit of a surprise, and puts the ECB’s benchmark interest rate at 0.05 %. It was also revealed that plans for further stimulus were also discussed. Those plans would likely include an ABS (Asset- backed securities) purchase program that could last several years. After the announcement the Euro pulled back over a hundred points, and the U.S. stock market continued to rally.
The S&P 500 continues to trade above 2000 and flirt with record highs. As we await Friday’s jobs numbers, there is a sense that the economy is improving, and a slightly faster pace than previous months. I do have the feeling with the ECB’ action and U.S. interest remaining low for the near future, that investors will continue to look to the index markets as a place to put their money. But I have also been around long enough to be a bit cautious heading into September
Trade Idea
I don’t want to rain on the S&P 2000 parade, but I also want to be prepared for a pullback. I like buying the October E Mini S&P 500 1980-1950 put spread at 8 points ($400.00) or better. A 2% pull back from current market levels would have the contact trading near 1965. If you are long this market you can look at the trade as a bit of a protection play. I am setting an early target exit 20 points, maximum value at expiration is $1500.00.
I usually like to be a glass half full kind of a guy. But I also like to be prepared as the glass starts to empty. I’d rather have a few extra cold ones in the fridge, than to leave the party to go get more. Always run the different market scenarios ahead of time and have a strategy in place. It’s better to have an exit plan ready than looking lost and asking for directions.
Webinar
For those interested Walsh Trading is holding our weekly grain webinar next Thursday September 11 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.
