Binary Options Weekly Briefing 1-6/10 – Stocks Close Down for the Week but Up for the Quarter as Investors Square Positions

Binary Options Trading Recommendation for the upcoming week –  Market Information and Trading Tips

Equity markets saw some significant short term drops this week (with US stocks showing the worst weekly performance since June), as negative economic data dampened some of the stimulus-fueled optimism that was seen for much of September.   The total performance in equities is still showing a positive performance for both the month and the quarter, as markets were encouraged by recent developments in the Eurozone.  The latest example of this could be seen with the stress tests of Spanish banks, which revealed a 59.3 billion Euro capital deficit and while this sounds like a large negative, it was still less than markets were expecting.  This helped to limit some of the losses seen this week and kept stock valuations afloat for the month. 

On a weekly basis, however, the S&P was lower by 1.3%, while the Dow Jones Industrials fared slightly better, dropping by 0.4% on the week.  One factor that should be noted in these numbers is the fact that volume activity in US stock markets showed transactions of 6.4 billion shares, which is 6% higher than the 3-month average.  So the main question traders should be asking themselves in the coming month is whether this is simply month-end (and quarter-end) position squaring, or is this defensive tone indicative of the larger market perspective as the investment community returns to full strength after the end of the Summer?

Economic Data at Odds with Stimulus Bullishness

Given that the jury is in with respect to how central banks are expected to stimulate the economy into the end of the year, market analysts will be forced to get back to work and actually analyze the economic data and postulate on its implications.  The latest data releases in these areas were  mostly disappointing, as second quarter GDP in the US dropped to 1.3% (versus 1.7% expected and 1.7% seen in the previous quarter), and Durable Goods Orders dropped 13.2% on a monthly basis. 

This is the biggest decline in Durable Goods orders since the beginning of 2009 and came along with an unexpected contraction in business activity for the month of September.  The Chicago PMI reading showed September’s performance coming in at 49.7, which was well below market expectations and below the critical 50 level that signals expansion.  Consumer spending numbers were also lower, as the Summer surge in gas prices constricted disposable income levels.

My Trading Recommendation in 50 words

 With markets slowly coming back to reality, I expect some downside corrections in the S&P as we start October.   I am entering into 1-month PUT options in the S&P 500 at current levels but will close and re-enter the position if we see a strong bounce off of 1390.