Weekly Market Assessment
Could we be seeing the calm before the storm? All of Augusts loses have been eased by early September gains (+3%). NASDAQ has reached positive levels not seen since 2000! In the past few years, Septembers have been a down month, however, we are currently experiencing the best September in 3 years. Are we reaching a top before the FOMC (Federal Open Market Committee) meeting next Wednesday? Has the Taper been baked into the market at these levels as the market continues to bounce off the 100 day moving average? Gold is selling off, down ~7% this week alone, while the 10 Year Treasury Bond continues to fight off the 3% milestone. What was interesting to see was the flow into European equities from U.S. based funds which hit their highest level since mid-June according to Thomson Reuters. In technical terms, we are seeing what could be a topping pattern. Decreased volume along side a rising market raises concerns. Advancing stocks in comparison to declining stocks is weakening when it should be the extract opposite in a rising market. The relative strength index is showing a divergence between market price and strength. These are just a few signs I'm seeing that have raised red flags. With all this occurring, could the big event next Wednesday be the pivotal changing point? In the meantime, markets are waiting for some guidance from the Federal Reserve, I'm sure you have never heard that before! The low yield party "may" be coming to an end and from here is where we will find out if the market can reflect the true strength of the economy.
From the Trading Floor to the Option Pit: A quick look at what's on the trading desk
E-Mini S&P 500 futures-Took a loss on the E-mini option trades this week of 5%. I am stepping away from the futures for now as volatility has fallen to lows again and with all the Syria talk, debt ceiling and taper talk it has become difficult to trade in and out of these.
Apple (AAPL)-After announcing their new phones on Tuesday, AAPL sold off 5% to find support at its 50 day and 200 day moving average. Coincidence enough these two average were crossing in what is called the "Golden Cross". Where the rising 50 day moving average crosses above the 200 day moving average. Also the 38.2% Fibonacci retracement level rested in this place as well. I purchase the weekly $470 "CALLS" at $3.25 and sold them the following day for $5.50 for a 1 day gain of 40%. Each "CALL or PUT" contract that is purchased is equivalent to 100 shares, so contract price X 100 is the total dollar amount for each trade. Lucky enough Carl Icahn also came on CNBC to discuss his investment in AAPL and how he was also purchasing AAPL share that same day.
SPDR S&P Homebuilders (XHB)- With taper talk coming next week I am looking at the home builders and how they will react to a continued rise in rates if we see the government beginning to reduce the amount of bond purchases. I am looking to short XHB at $30.25, while hedging my position with monthly $30.50 "CALL" options and financing this trade by selling a monthly Vertical "CALL" spread. I am looking for the XHB to fall below $30, if we begin to taper. I also will be looking to short other Home Builders such as KB homes($16.97) and Toll Brothers($32.15).
Vale (VALE)- engages in the research, production, and marketing of iron ore and pellets, nickel, fertilizers, copper, coal, manganese, ferroalloys, cobalt, platinum group metals, and precious metals in Brazil and internationally. Good economic data out of China has brought the spotlight back onto VALE. It has broken above its 20 and 50 day moving average. This is a long term holding and will continue to add to the position any time it breaks below $15.50. Current price is $16.05