Tip from the Geek – Correction: Why Are We Selling?
Top 5 Trading Signals 10/20-27/2014 by the Geek
Last week the market began to wonder to itself…why are we selling? The major US indices came very close to a full 10% correction, the NASDAQ actually hitting the mark. This is a target correction the market has been looking for for over two years. Time and time again the media, pundits, analysts and so forth have poo pooed previous buying opportunities in favor of waiting and now it looks like they are starting to put there money where there opinions are and entering the market. The price action in the SPX, DJI, COMP, RUT and others all support this idea. The thing to keep in mind is that we have had a pretty serious correction, there are still quite a few short term losers in the market, the indices are at a resistance level and you should be prepared for a retest of support.
What is on tap for us this week? First up there is still a risk associated with Ebola. The disease is still present in the world and there is still a chance it could rear its ugly head and grab the markets attention. After that it will be earnings. So far the signs are good but IBM gave traders a shake up in the early part of Monday trading. The global tech giant posted an enormous miss on both the top and bottom lines as its cloud business causes the physical business to suffer. This is a big big week for earnings, not the biggest of the season but large. There are over 700 companies reporting ranging from financial institutions to blue chips, tech, consumer products, small caps and many many others. Names on the list include Apple, Chipotle and Ford. Also up this week is economic data. There are several reports of note including existing, pending and new home sales along with some inflation and jobs data. Next week is real important as it is the FOMC rate decision on the fate of the taper and the first look at 3rd quarter GDP.
1. The S&P 500, Where To Now
S&P 500
Call/Put = Put
Entry = Above 1895
Expiry = One Week
My Trading Advice
The SPX made a hefty bounce last week. The index touched long term support, driven lower by fear and Ebola headlines, nearly reaching the 10% mark, when the buyers stepped in. It could have short covering, it could have been bottom picking and it could have been long term strategy but I suspect a mix of all three. Regardless, the drop down to support was pretty severe and the indicators are in line with a test of support. Even without the indicators there are a few reasons to think the index will consolidate below resistance.
First, its earnings season, and still very early. So far the season has been OK but IBM’s big miss is a bit of a worry. On top of that there is a little bit of a cloud over the future expectations, based on a few factors of its own. After that the Fed meeting is next week. The Fed is expected to end the taper with the final $15 billion but there is even a cloud over that. The data is line with the taper, and higher rates even, and yet Bullard made his seemingly school boyish comment about the Fed extending QE for another month or more. And, after that, next Friday is the 1st estimate of 3rd quarter GDP. Signs point to a strongish number, maybe over 3%, but again, it is the future outlook that will matter more. This week I am trading a put with a target entry above 1895, or as close to 1900 as I think I can get, with one week until expiry.
2. Yen 110
USD/JPY
Call/Put = Put
Entry = Above 106.80
Expiration = One Week
My Trading Advice
The yen hit 110 versus the dollar, as expected by many long term forecasts, but has since corrected. This is the same action the pair displayed following the run to 105 and an indicator it will consolidate before moving higher again. The pair is being affected by dollar strength, and in turn US data and the Fed, which makes next week a likely time for the pair to break resistance at 107 if it is going to. I am trading a put on the pair with a target entry above 106.80 with one week until expiry.
3. Bouncing Golden Ball
Gold
Call/Put = Call
Entry = Below $1245
Expiration = One Week
My Trading Advice
Gold is bouncing from its long term lows while global economics are in question. There is a mild flight to safety factor as well, based on Ebola, but one that is less strong than others we have seen this year. There is some data this week that could move the market but for now the momentum is to the upside. Next weeks Fed meeting could put a cap on that, if they mention rate hikes in a nearer-term kind of way. Otherwise, I see gold moving higher and/or consolidating near the current levels. I am trading a call this week with a target entry below $1245 and one week until expiry.
4. Manipulation In The Oil Markets
Oil/USO Oil ETF
Call/Put = Put
Entry = Above $31.25
Expiration = One Week
My Trading Advice
There is mounting speculation of manipulation in the oil markets and I say….duh. Of course there is, the US does it, the Saudis do it, OPEC does it, Iran does it and pretty much every country involved in global energy can be said to do it. Now the US is being blamed for low prices in an attempt to hurt Russia and ISIS, so what? They deserve it and low oil prices is good for EVERY person on the planet, except the few who make billions selling it. I am trading a put on the USO with a target entry above $31.25 and one week until expiry.
5. Over Reaction In Europe
DAX
Call/Put = Call
Entry = Below 8700
Expiration = One Month
My Trading Advice
I think the sell off in Germany is a huge over-reaction. The index is at long term lows driven by Russian sanctions and weak local data. The thing is, global trends remain up, the weak data may force additional measures, and the DAX will rise. I am trading a call with a one month expiry in order to allow the index time to move past earnings season, the FED and the next ECB meeting.
More Tips by the Geek – 10/20-27/2014 Trading Tips On Forum.
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That’s it for this week; Michael will be here next week with fresh trading tips. Meanwhile, we will be testing Michael’s tips to see what kind of an “expert” he really is. All trading assets and expiry times featured in Michael’s trading tips are based on CommuniTraders Binary Options Trading Platform.
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