Trade & Market Update

The Case-Shiller 20 city housing index came in yesterday with its 4th consecutive rise in home prices.  Most economists now agree that housing prices have bottomed.   Additionally, yesterday’s earnings came in with 80% meeting or exceeding expectations, which is consistent with the results from last week.   Consumer confidence, however, came in lower than expected giving the bears some fuel for their fire.    

The market is skittish in trying to figure out which way to go next and is getting choppy.   Because the market has been pulling back, we have not had a chance to open our top bear call spreads yet.  (including the auto-trade accounts)  Our next chance will be this Thursday the 29th when the Q3 GDP is released, and if it’s good the markets could have a strong UP day giving us the opportunity to open some of our top spreads.

Comments (4)

Barney HOctober 28th, 2009 at 10:08 am

At the moment the RUT is trading at 575, below the 50 day moving average of 585.
I’m thinking of opening a RUT 500/490 Put spread, which is well below the 100 day moving average of 560. I might be able to get a credit of $0.40.
If tomorrow’s 3Q GDP is good, then the trade will be very safe… if the 3Q GDP is not good, then the correction will continue and I will have entered the trade prematurely.
Most economist think the recessionis over; so the 3Q GDP should be good… but what other information could I use to decide to do or not to do the trade? Thanks!

bradrrOctober 28th, 2009 at 10:52 am

Unfortunately, there is not much more information that we can look at other that what we’ve already analyzed in the Sunday advisory. We have been seeing negative divergence for several months and the market is due for a pull-back. The market is richly priced and “priced for perfection”. Per the broad-based diffusion economic indicators, 2 of the 3 that we monitor continue to climb or are at least are holding steady. The other, the Aruoba-Diebold-Scotti business conditions index that we showed a few weeks back in the Sunday advisory has pulled back a lot. Tomorrow’s advanced Q3 GDP number will most likely be good, however if it’s not, then this market could pull back hard since investors are looking for any reason to pull the trigger and run from this overextended market. And the RUT might drop down to its 200 day line near 510. I personally would like to see what the GDP number looks like before opening any spreads this month since we still have 18 trading days to go. I think we have plenty of time to still open our bottom spreads; but time is running out for our top spreads.

Barney HOctober 28th, 2009 at 11:05 am

Thanks Brad!
This certainly has been a tough month for risk management, and I really appreciate your conservative, thoughtful approach. If I do anything with RUT today, it’ll be with a 490/480 Put spread (to make sure I have some margin below the 200 day average). Hopefully tomorrow will be a good day for the top spreads!

Jon DOctober 29th, 2009 at 9:35 am

How are you guys going to react to today’s positive GDP #’s? Selling more Bear Calls or Bull Puts?

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