Despite multiple attempts by the bears, equities refuse to stage a correction. The three-week rally has been resilient, but whether or not it is healthy is another question.
The day's news was questionable at best, but traders likely won't make any dramatic moves until the release of Friday's non-farm payrolls data. In the meantime, they are digesting news that the ISM services index showed more contraction that previously calculated and ADP is predicting more job loss than analysts were looking for.
In recent weeks, buying on dips has been the only profitable trade. I wonder if this trend will continue beyond Friday's data and more importantly beyond earnings season. However, let's face it...myself and many others didn't see the market coming this far this quickly and betting against the bulls has been a tough trade.
According to our weekly chart work, 1010 should mark the short-term high in the September S&P but a daily chart reveals that the rally could extend itself to the 1030 area. Only time will tell how it plays out but the bottom line is that both bulls and bears should play this one close to the chest. A large breakout in either direction is possible and for those on the wrong side it could be very painful.
In the past, the market has been prone to sideways trade ahead of large news events. I feel like that was one of the major contributing factors into today's late session comeback. If my assumptions are true, tomorrow should be a consolidation day in anticipation of an uncertain employment report.
We see resistance in the September S&P futures near the round numbers...1010, 1021 and then again at 1030. It seems like the market wants to go higher before it goes lower, bears should look cautiously toward the mentioned resistance levels. When, or if, prices turn around the first significant area of support is 950 based on current valuations. Resistance in the September Dow lies at 9,310 but if the rally gets "out of control" 9,560 is possible.
If you are following our short option strangle, we recommended that our clients take advantage of the morning dip by rolling the August 995/925 strangles into the September 1045/940 strangle for a credit of about $3 in premium. This slows down the trade and moves the risk comfortably away from the market....for now.
* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data. However, market analysis and commentary does. Charts provided by Track 'n Trade, Gecko software.
**Seasonality is already be factored into current prices, any references to such does not indicate future market action.
Please note: A mini S&P chart is used because it is better for charting purposes, but trade recommendations are based the full sized S&P unless otherwise noted.
S&P 500 Futures and Options Trading Recommendations
**There is unlimited risk in naked option selling and futures trading
Position Trade -
July 22 - Buy cheap August S&P puts. We like the 880's and the 885's, you shouldn't pay more than $6.50
July 15 - We like selling the August 975 calls, fills ranged from $7 to $9 today.
• July 28 - We recommended to sell the 925 puts for a little over $8 to take a bit of the heat off of the 975 calls
• July 29 - We recommended to buy back the 975 and sell the 995 to give the trade a bit more breathing room and lower the delta
Russell Futures and Options Trading Recommendations
**There is unlimited risk in naked option selling and futures trading
Position Trade -
Flat
Please note: A mini-NASDAQ chart is used because it is better for charting purposes, trade recommendations will denote whether a mini or full sized contract should be used.
NASDAQ Futures and Options Trading Recommendations
**There is unlimited risk in naked option selling and futures trading
Position Trade -
July 28 - Sell the e-mini NASDAQ at 1630 or better.
• August 3 - We recommended to buy an August at the money (1630 call) for about $600, this limits the risk of the trade to the premium paid for the option plus commissions and fees.
