Sam Collins will be on vacation through June 25. Filling in
for him are two other top technical analysts, Chris Johnson
and Jon Lewis.
The market couldn't be more fickle during the last few trading
days as the bulls and bears are locked in a low-volatility game of
"chicken." The benchmark indices finished the day mixed as the
Dow Jones Industrial Average
) finished higher, and the
) ended the day lower.
As has been the case all week, the major sectors were mixed,
with five ending up and five down. The strongest sectors,
relatively speaking, were the telecom (+0.6%), consumer staples
(+0.3%) and materials (+0.1%).
As sad as it is, the FOMC meeting results was the best chance
that the market had to grab a catalyst to rally today, though we
will see some actionable reports tomorrow before the open as we'll
get a look at durable goods orders (consensus expects -1.3%),
durable goods orders ex-transportation (consensus expects 1.3%),
initial unemployment claims (consensus expects 460,000) and
continuing unemployment claims (consensus expects
With market sentiment taking a negative tone, a mix of in-line
reports would be enough to get this market to poke back above the
critical technicals it recently dipped below. In case that's not
the outcome tomorrow, let's look at the likely downside
The SPX failed to move back above the psychologically and
technically significant 1,100 point today, increasing the odds that
a trip back to the 1,050 level (some 12% below today's close) may
be in the cards. These odds are now on the rise as a few of the
pre-earnings season reports are hitting the tape, with little to be
After Wednesday's close,
Bed Bath & Beyond Inc.
Herman Miller, Inc.
) were trading lower on earnings results. Not a good start to the
pre-season reports. We expect to see an increase in the pre-season
announcements next week, adding to the volume and volatility in the
OK, so where does this market appear to be headed? Well, the
downside risks are now growing, which means that the options
traders in the crowd should be considering some put
What do I mean by that? Well, by purchasing puts on the
SPDR S&P 500
PowerShares QQQ Trust
iShares Russell 2000 Index
) shares we can effectively hedge a portfolio against market
declines over the short run.
In today's case, I would suggest that options traders look to
leverage the potential 10% decline in the S&P 500 over the next
few weeks by purchasing the
SPY July 107 Puts
), which closed the trading session on Wednesday at $1.84. This
option would provide a degree of leveraged protection against a
move by the SPX to the 1,050 or lower levels.
We're starting to prepare for the worst, while trying to expect
something better. On that last point, it is not out of the possible
outcomes that we could see the SPX break back above the 1,100 point
tomorrow, which would excite the sideline buyers. This backs up our
perspective of the current technical picture as "trading in no
man's land" for now.
The bottom line is that we need a decisive move, to the upside
or downside, over the next few days to provide the indication of
whether the next 10% move in the market will be higher or lower.
Tomorrow may be the day to provide this directional move.
We're certainly standing at the ready to initiate a new string
of option positions to benefit from the impending move in stocks.
We'll do our best to keep you under our wing as we open these new
positions. Trade well.
Double Your Money on the Rumor AND the News
Learn how to cut through the rumor and manipulation surrounding
corporate earnings announcements and bank money-doubling option
trades all year long.
Download our FREE trading guide here.