MACRO BACKDROP:
Welcome back. Holidays are nigh, folks. That said, the equities were anything but jovial today, it seems. The red had nothing to do with Santa Claus or some reindeer’s nose. European news and China were probably less of a focal point in domestic markets today. Stocks across the board were sold off, bleeding hard. Weaker U.S. economic data and speculation about a partial government shutdown may have helped drive this plunge, according to some sources. Energy prices, like crude, suffered from selling pressure too. The dollar bled. Yet, the bond futures were relatively strong today, ahead of the FOMC announcement on rates this Wednesday. This now calls into question exactly how many more hikes will need to be had to fend off inflation and a slump in economic growth. More questions than clear cut answers, in my view. Though nothing is ever certain in the market, my contention is the same as it has been all month: the path forward for underlying stocks will continue to be met with resistance as this year fades out, and the new one fades in.
STRATEGY: Don’t believe in the clean, upward trend. Stocks gave it up to flight to safety today, but those assets may grow overbought then, slightly flush. Losses in stocks are merely rotations between risk assets, in my view. So if you’re trading index futures right now, I think that we could head a bit lower in the Dow, S&P and NASDAQ. As the underlying indices appear to be much more correlated with rallies and drawdowns, my opinion is to refer to the charts, calculate the ranges based on volatility and buy option premium. Indicators may be pointing to a short covering session soon.
Futures and options trading involves substantial risk and is not suitable for all investors. Therefore, individuals should carefully consider their financial condition in deciding whether to trade. Option traders should be aware that the exercise of a long option will result in a futures position. The valuation of futures and options may fluctuate, and as a result, clients may lose more than their original investment. The information contained on this site is the opinion of the writer or was obtained from sources cited within the commentary.The impact on market prices due to seasonal or market cycles and current news events may already be reflected in market prices. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
For questions, comments or deeper conversation regarding these insights or to talk more specific trade ideas, please reach me via email: bsears@walshtrading.com or my direct line: (312) 957-8079.