Statements from Fed Chairman Bernanke continue to be the focus for many market observers. Since May, those who participate in “Fedwatch” have started paying a little closer attention than they had the previous year or so. In a little over a month we have seen hints that the Fed would cut back its asset purchase program as early as September, then tell us that 2014 would be the earliest we could see some tapering of the program. Yesterday the Chairman cleared things up a bit (I think) in his in his address to Congress.
You may have a planned route for your summer vacation plans, but the Fed does not for its current economic policy. “Asset purchases depend on economic and financial developments, but they are by no means on a preset course.” Chairman Bernanke said the Fed still expects to start scaling back the bond purchase program later this year, but that timetable can change based on any changes in the economy. In other words, the Fed has all the bases covered.
NEW CONTRACT HIGH AHEAD?
Right now I think most traders are looking at recent comments from the Fed as a reason to stay in this market. The running of the bulls may be over in Spain, but I think it is still taking place in the equity index markets. I think this market could put in a new contract high in the next few weeks.
The September S&P 500 is currently trading near 1680, just shy of the 1685 high. I’d like to stay in front of the bulls buy buying the August E-Mini S&P 500 1700-1750 call spread at 12 points ($600.00) or better. Since the trade is long premium, risk is limited to the cost of entry plus fees and commissions. With just under a month to go until expiration (8/16/13) I like the chance of an increase in premium. I am setting my first target exit at 25 points.
WORDS OF WISDOM
Many people are drawn to trading because of the excitement of being a part of the market. It can be exhilarating to be right in your convictions, and be financially rewarded at the same time. Just remember to stick to your risk management plan. If you don’t be careful when running with the bulls, you could get gored.
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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.
