We have seen an incredible rally in the equity indices this year. Some players have been along for the whole ride, other joined in along the way. Watch this market closely for any reversals.
Manage your risk wisely and plan for your exit. In times of panic, lifeboats fill up quickly.
MARKET ACTION
The month of August started off much like the year did for the S&P 500, with the index putting in a new contract high of 1705. Since reaching a new high on August 5, there seems to be a bit of wavering from the bulls. Perhaps it was the words of Atlanta Fed President Lockhart suggesting the Fed could cut back on its stimulus program as early as September. This is a bit of a contrast to what was recently coming from the Fed’s public statements.
THE CHART
On the technical side we are at levels not seen before in the S&P 500. If you have been riding a long position for quite some time, it would be awfully hard not to be a seller now. If you would have previously asked anyone following the market if they could sell the index at 1700, I bet a very large percentage would say yes!
BEARISH SIGN?
Whether it is a fundamental change or a technical level the result is the same. The S&P 500 has closed lower for the last three sessions. This has a lot of traders wondering if we are at a top, and if so how far can the market tumble from here. It has me thinking about where this market may be a few months out, and how can I trade a pullback.
PUT SPREAD
Right now I am looking to buy puts or put spreads in the October E-mini S&P 500. I like buying the Oct 1600-1550 put spread at five points ($250.00) or better. The risk would be limited to cost of entry plus fees and commissions. This trade has plenty time until expiration, (10/18) and would take advantage of a large pullback for without sticking our necks out too much. Aggressive traders may look to trade multiple contracts. I would look to start scaling out of the position 15 points for the first exit.
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.
