We all have opinions on market direction. Of course opinions can change as quickly as the weather, especially when a new indicator pops up. One of the great things about trading is the ability to change our opinion and put it into action immediately. Some traders can change their opinion often and get a hot streak going. Just remember, you may be hot for a while, but you better be prepared for colder weather.
ECONOMIC NEWS
Last week’s much better than expected jobs numbers gave the market something to think about. Could the taper talk that had been pushed aside by many (guilty, your honor) move up in the calendar? Prior to the employment situation report last Friday, it seemed the consensus from most market observers was that the earliest possibility of a reduction in the Fed’s stimulus program would be late in the first quarter. Many felt it would not occur until June. The increase in Nonfarm payrolls to 204,000 (120,000 consensus expectation) gave many a reason to rethink their views on a possible taper.
The new data had some observers looking for a slowdown of the QE program as early as year end. Others were looking to start off the year in January with a little less boost in bond buying. A week later many have returned to the same view they had prior to last Friday’s numbers. The reason for the change stems from testimony from Fed Chair nominee Janet Yellen. Nominee Yellen stated that the economy and labor market are performing “short of their potential” and need to improve before any stimulus reduction takes place. In the nomination hearing, Yellen also stated “supporting the recovery today is the surest path to returning to a more normal approach to monetary policy”. In my Fed-speak translation device, that means full steam ahead, keep buying those bonds.
E-MINI CALL SPREAD
The current and future Fed have indicated that the numbers will tell it when to slow down its current stimulus program. I’m going to follow one of my favorite adages, Don’t Fight the Fed.
I like buying the January E-Mini S&P 500 1825-1875 call spread at 10 points or better. We are buying enough time to get us through year end, and see if this market will continue to post new highs. Our risk is limited to the cost of entry plus fees and commissions. I like staying with this trade for a while, but I don’t want to lose more than 6 points.
Those interested in the grain markets are invited and encouraged to attend our free weekly grain webinars hosted by Walsh Trading’s Senior Grain analyst Tim Hannagan. Tim has been rated #1 by Reuters and Bloomberg in 2011 and 2012 for his accurate price predictions for both corn and soybeans
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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