Weekly Binary Options Briefing 6/24-7/01/2013: Stocks Lower as Phased-Out QE Closer to Reality

Binary Options Trading Recommendations for this week – Markets Information and Trading Tips

Stock markets fall at week’s end as US stimulus programs could be reduced in September.  Bullish bias seen in US Dollar, tops seen in global stock markets. Next week, volatility to slow in reduced event risks.

Weekly Binary Options Briefing:  Stocks Lower as Phased-Out QE Closer to Reality

Stocks saw big losses into the end of last week as investors start to re-position for a market environment where central bank stimulus is less prevalent.  This will complicate the scenarios seen in all asset classes, as stocks will likely be weighed by diminished earnings forecasts.  The opposite is true for the US Dollar, as reductions in monetary injections create a bullish scenario (comparable demand chasing fewer goods means rising prices).  Then, by extension, commodities priced in Dollars (such as Gold and Oil) are more likely to trade heavy, given their inverse correlation to the currency.

        We saw the initial effects of these potential changes in stimulus policy, with the S&P 500 trading back through 1600, the EUR/USD falling below 1.32, and Gold trading at new lows for the year below 1300.  It is unlikely we will see any thing that significantly alters these trends in the coming months, with a growing section of the market expecting the Fed to begin its “tapering” process as early as September.  So, while there were no direct changes to Federal Reserve policy at this week’s FOMC meeting (monthly asset purchases of $85 billion will proceed as before), the writing is on the wall and the Fed’s third round of QE is coming closer to its end.

The Week Ahead    

 In the week ahead, it is unlikely we will see the volatility the market’s experienced last week, as the data scheduled is quieter and the dust still needs to settle after last week’s fireworks.  The broader environment is still Dollar-positive but given the moves seen last week, it would not be a surprise to see some corrective pullbacks as traders take profits on long positions (or short positions in stocks).

My Trade Ideas (Trade on CommuniTraders): 

1. I took profits on some short term Dollar long positions last week, and I am on the lookout for new opportunities to buy the greenback.  But I will need to see some retracement from the recent rallies before buying back into currency pairs like the USD/JPY and the USD/CHF.  Conversely, I will buy into the weakness seen in EUR/CHF, as prices have come off sharply from their yearly highs and limited downside is seen from here.  Central bank policy from the SNB is still calling for a weaker currency, and this means downside in the EUR/CHF should be contained around 1.22.  Buy weekly CALL options in EUR/CHF at 1.2250.

2. For stock trades, I will look to JC Penney (JCP), a company whose troubles have been well publicized in recent months.  The company has continually missed Wall Street earnings estimates, and the recent price rallies have fallen short of 20, meeting resistance inside its well defined downtrend channel.  Buy monthly PUT options in JCP at current levels (near 16), as prices should have difficulty overcoming its previous barriers at 20.