All Eyes on New Greek Government’s Commitment to Austerity – Looking to Buy Gold Call Options on Weakness

Binary Options Trading Briefing – 13/5 – 18/5

Equity markets in the US saw a second straight week of declines, and this led to the largest weekly loss so far in 2012.  Most of the negative sentiment has been created by political uncertainties in Greece, which is bringing the focus once again to the debt crisis in the Eurozone and is leading to analyst speculation that the country will be forced to abandon the Euro currency.

 

In addition to this, there was plenty of negative news in the financial sector, with JP Morgan reporting trading losses in excess of $2 billion.  JP Morgan stock was down more than 11 percent on the week, helping push the S&P 500 down 1.7 percent during the same period.  Other negative stock headlines in the US were generated by Macy and Fossil, which disappointed earnings forecasts, while Disney was one bright point during the week, rising more than 6 percent after its latest movie release “The Avengers” hit record sales numbers in its opening weekend box office numbers.

 

The main story, however, will be whether this year’s rally in the major stock indices will be sustainable, as last week’s price activity saw a drop in the S&P 500 of 1.2 percent to trade just above 1350.  This of course equates to a 7.6 percent gain for the year so far and options traders will now start to focus on the possibility that equity markets have posted their highs for 2012.

 

Market moving headlines in the coming week might be difficult to interpret for some new traders.  Most of the attention is likely to focus on Greece’s ability to form a majority government and the willingness of that government to enact austerity measures that were agreed upon previously.  These measures will be required from the rest of the EU in order for additional bailout funds to be disbursed to Greek bond holders.  Any suggestion that there are political disagreements could lead to bailout funds being delayed, and create risk that Greece will miss some of its treasury repayment deadlines (in effect, a debt default).

 

The headlines in Greece have taken precedence over economic data releases during the past two weeks but some of the most significant reports to watch next week will be the minutes from the Reserve Bank of Australian’s May monetary policy meeting as well as the first quarter GDP figures from the Eurozone on Tuesday.

 

My Trading Recommendation in 50 Words:

With risk sentiment seen widely negative and weakness coming into Gold prices in recent sessions, I will be looking to enter into a one month 1550 call option in Gold, as prices are likely to be contained by the double bottom seen near 1520 in the coming month.  Upside targets include a rise to at least 1665 first before seeing initial resistance but a break here would target a significant run higher to 1790.

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