A very volatile start to what should be an interesting week. Let's start with the fundamentals:
**debt conversations ongoing
**a "contracting" ISM manufacturing number (new orders and the unemployment component were soft as well)
**ISM-services data on Wednesday - look at new orders and employment subcomponents
**disregard ADP data - inconsistent and not a government number
**ECB announcement on Thursday - currently 1.50 percent
**initial claims on Thursday
**non-farm payroll and unemployment on Friday
So as you can see, lots to keep the markets volatile (hopefully) and potentially some good trading opportunities will appear. It will be interesting to see where we are on Thursday afternoon and if we aren't significantly lower and we get a bad jobs number, how much lower will that drive us.
Technically, 126 in SPY is very close - we were within 1.5 points of it as of today's low. If you weren't already short and probably taking some profits, I am not sure if the risk to reward lines up to get short now in the SPY. Two scenarios could get you short:
1. we would have to retrace upwards to a Fibonacci level or moving average
2. We would break support at 126 and give reason to add to existing shorts/put on new shorts.
What about your watchlist? What does it look like? Are there some stocks still hanging in that you want to protect using covered calls, bear calls and married puts? Are there stocks and sectors that are oversold that are attractive to pick up with longer term calls or selling puts below the markets for income?
The markets are providing more opportunity, verified by the VIX in the mid-20's. I think I could handle the VIX closer to the high 20's as long as the data that is driving that fear is economic calendar based versus speakers/"un-known" events.
In the forex markets, we had large ranges in the GBP/USD and EUR/USD, with the EUR/USD providing two BUFFALO BOUNCE trades. Things went sideways soon after as the markets traded in a 300 point range within 2 hours of the open and then slowed down significantly. We seem to be getting this type of trade a lot - a gap up or down at the open and then a sideways to counter trend trade for the rest of the day. The most opportunity seems to be at that time and then volume/liquidity/overall interest seems to wane quickly. Hopefully this is due to summer markets, but it could just be from an overall bias to the upside in the equities and fear of the "buyer stepping back in" that causes volatility to die off quickly. Take a look at the EUR/USD on a daily chart and you will see are stuck in the handles of 1.39-1.45:
Past performance is not indicative of future results
Looking at the "gold trade" it seems like the AUD/USD is pausing before a move higher. Which one will lead, gold prices or the AUD?
Past performance is not indicative of future results
Moving to equities, we already talked about 126 in SPY. How about trendlines. Let's look at the high flying NFLX:
Past performance is not indicative of future results
The trendline extends back for a 13 months, meaning many, many traders and investors are watching as the more points a trendline touches and the longer it is in place, the more validity (and impact) it has. The recent move off of it was about 13.00 which would have moved a slightly in the money call about 30%.
Stay tuned for more excitement tomorrow!
Happy Trading and Be Environmentally Cool
Coach Brian
Forex trading is one of the riskiest forms of investment available in the financial markets and suitable for sophisticated individuals and institutions. The possibility exists that you could sustain a substantial loss of funds and therefore you should not invest money that you cannot afford to lose.
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