The start of a new year is always interesting. Many people view it as a fresh start, and try to “reset” or apply resolutions in a similar fashion. Due to the way taxes are calculated (per calendar year) January does serve as a new starting point for investors and traders. It doesn’t always play out that way in the markets though.
2013 brought us an incredible run in the equity markets. The S&P 500 had it largest increase in 16 years; the Dow saw its largest gain in 18 years. Every time the market got knocked down, it got right backup..and then rallied some more. The S&P 500 closed the year on the highs and posted a nearly 30% gain for the year.
2014 has not gotten off to the start that 2013 had. In the first week of trading for the year, the March S&P 500 has had lower closes more often than not. There are a few things that give me concern as we head further into 2014. The effect of continual tapering of the Fed’s stimulus program, and the possibility of many investors leaving the market to cover taxes for 2013 gains.
BUY SOME INSURANCE
Right now I am looking at a bit of an “insurance “play as we move into the first quarter. I am looking for a bit of protection on a possible downside move. I like buying the March E-Mini S&P 500 1700 put for 9 points ($450.00) or better. This is a ways out from the current market price near 1830, but only a 7% retracement. I am looking to stay in the trade until expiration, and look for the maximum gain possible. Id the market is not within 25 points two weeks from expiration, I would look to exit then to limit losses. Since the trade is long premium, risk is limited to cost of entry plus fees and commissions.
New Year, new start. It’s a good time to review your trading plan and make sure it’s working for you. Plan your trading, and trade your plan. If you are not sticking to your plan and discipline, you are no different than the guy who stops going to the health club at the end of January.
Best of luck to you in your trading this year.
For those interested, Walsh Trading holds weekly grain webinars that are free for those who attend. They are hosted by our senior grain analyst Tim Hannagan. The link for this week’s webinar is here and that will take place this Thursday at 3pm central time. Again signup is free and if you cannot make it live, a recording will be sent to your email
E-mail Weyer here with questions.
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.
