Weekly Market Assessment
The grand experiment by the worlds central bankers! On Thursday, Mario Draghi, the ECB (European Central Bank) President, took an unprecedented move. He imposed a negative interest rate on banks for their deposits, translation - charging lenders who park money with the ECB. An untested and unforeseen action to force banks to lend or be charged for trying to hoard it! Wow! The goal of the ECB is to manipulate their currency to spur inflation and move away from deflation by cutting interest rates. The announcement at first dropped the value of the Euro against the dollar, however after an hour, it rallied right back up. To the contrary, the exact opposite of their intentions. This should have sparked a rally in the U.S. markets, as now the European Union was taking a page out of the Federal Reserves book and moving to more extreme monetary policies to spur growth, similar to our Quantitative Easing. The result, we opened up 30+ points only to selloff into negative territory as the Euro started to regain strength.
What looked like the beginning of a market selloff, where the ECB comments may have already been factored in, comes breaking news. David Tepper, a huge hedge fund manager, who only months ago said, "not to be so long", and was "nervous" about the market, came out with a statement saying that his market concerns have been "alleviated". Market reaction - a 100+ point rally and of course, new all time highs again! Now, how does one go about exiting a huge market positions when current market volume is extremely low... While also trying not to raise suspicion that one is selling? Here is how - wait for a major market event, comment on your newfound confidence in the market and then sell to those on the way up! Coincidence that his statement came on such a big day? Jesse Livermoore took advantage of this tactic in the early 1900's. He cornered the cotton market and when rumors started of his position, everyone began to buy while he willingly sold. The one thing that holds true in this market - it can remain irrational longer than you can remain solvent!
Making the Watchlist: Below are the stocks that I will be looking at over the coming months. I will provide the the current stock price and why I am watching them. I will comment on them as I continue to keep an eye on them. You will be able to see and follow their growth and/or decline. Chart links may be attached.
Apple (AAPL) $645.47-Apple is doing a 7 for 1 split on Monday. This will put the stock at around $92. The value of the company remains the same however psychologically, traders will look to this as an opportunity to buy Apple at a reduced stock price. Should be very interesting and I may look to purchase "CALL" options on the split!
From the Trading Floor to the Option Pit: A quick look at whats on the trading desk
S&P 500 (SPX) - I bought a Vertical "PUT" Spread at 1945/1940. We have now gained over 5% for the year in the market and I'm looking for a short term pullback after the past two big days where the ECB meeting and jobs report has pushed this market into new highs. I need the S&P 500 to close or trade into and below 1945, currently sits at 1949.
NetFlix (NFLX)- After being up more than 40% in the past month, I'm buying a Vertical "PUT" spread at $430/$427.50. Looking for profit taking and with the recent battle between Verizon over Internet speeds, could create a small pullback in the stock.