Central Banks, NFPs in Focus
Earnings reports starting to show weakness in troublesome areas. Central Bank meetings from the BoE, ECB, and Federal Reserve. Non Farm Payrolls on tap. Summer doldrums could see unexpected volatility this week, given the size of the medium term event risk at hand.
Stock markets continue to trade at elevated levels but our previous weekly close suggests a climate of slowing momentum. What is most troublesome about this lack of enthusiasm (and lackluster momentum) is the fact that there are major questions with respect to whethor or not valuations are appropriate. Key misses in the tech sector (AMD, MSFT, INTL, and GOOG) suggest that broad indices like the S&P 500 are begining to show divergences when we look at things sector-by-sector. For these reasons, I have started making calls to favor the S&P over the NASDAQ (at the very least) but the real issue here is that stock markets are in vulnerable territory at these elevated levels.
The Week Ahead
The event risks this week only add to the potential for uncertainty. Rate decisions from the Bank of England, European Central Bank and US Federal Reserve are not expected to show anything material in the way of direct policy change. What will actually move markets this week is the contextual bias that is made public at the post-meeting press junckets, as this will give investors an indication of how much each government is willing to put its credibility on the line and commit to positions on stimulus. Do the major economies need help? Or is the economic data improving at a sustainable rate? These are the major questions that need to be answered this week. By Friday’s close, we will know if policymaker’s are ready (or able) to set markets on a clear course.
My Trading Ideas
1. Last week’s EUR/CHF trade finished a meager 25 points out of the money. Market moves like this are an unfortunate reality when dealing with binary options (which put a clear timeline on a market analysis that could be correct shortly after). As we start the week, valuations are already moving higher, so I will give a couple levels at which to initiate CALL options in the EUR/CHF. This week, look to buy weekly CALL options in EUR/CHF at 1.2320. If we do see prices fall below this area, look to get bullish again at 1.2280.
2. Recent moves to restrict over-capacity in China lead me to a bearish bias on Copper. Those familiar with the country could easily argue that most of the productivity in China is “overly excessive” and since the government is enacting new measures that implicitly admit this reality, construction materials are likely to see selling pressure into the end of the year. China is the world’s largest copper consumer, and I prefer to play these scenarios using the iPath Dow Jones UBS Copper Total Return Sub-Index ETN (stock symbol JJC). If your binary options broker does not offer a way to get bearish on copper, I suggest you find another broker. Buy one month PUT options in JJC is we see rallies 39.
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