By Luis Aureliano

2017-03-12_0137The US economy is barreling full steam ahead, with jobless claims at multi-decade lows, unemployment holding steady at 4.8%, and inflation approaching the 2% differential. With that in mind, it makes sense that Fed heavyweights Janet Yellen and her vice chair Stanley Fischer are raring to go. In fact, Yellen was unequivocal in her statements recently:

‘… Given how close we are to meeting our statutory goals… The process of scaling back accommodation likely will not be as slow as it was in 2015 and 2016…’

Simply put, this means that the Fed is going to act sooner, rather than later. Based on the latest probability numbers from the CME Group, the chance of a 25-basis point rate hike on Wednesday, 15 March 2017 is now at 79.7%. This means that there is an overwhelming likelihood that the Fed will move to hike interest rates this month. This has far-reaching implications for the broader US economy, and the global economy.

How will Fed Policy Impact Markets?

Big league. The Fed is the world’s most important monetary authority. It is responsible for the US monetary policy and that includes interest rates. If the Fed decides to raise interest rates in March, this will have a direct effect on the USD. The greenback strengthens with rate hikes, and this affects all dollar-denominated commodities such as gold bullion, silver, copper, crude oil and the like. (more…)

By Chris Ebert

There are millions of ways to analyze the stock market, but there are three simple ways of analyzing the S&P 500 through the options market.

  1. Covered Call trades are a good indicator of bullish or bearish sentiment,
  2. Long Call trades are a good indicator of bullish strength or weakness, and
  3. Long Straddle trades have typically been a good indicator of whether most traders are surprised by current stock prices, thus a good indicator of stock prices being overextended.

Traders of the S&P 500 are clearly bullish right now. That can be seen by looking at the performance of certain expiring Covered Call option trades on the Exchange Traded Fund $SPY which tends to correlate with bullish sentiment. When Covered Call option trades opened at-the-money on a broad based ETF such as $SPY expire with a profit, it’s a good bet that bullish sentiment is rampant.

CCNPI 03-07-17a

When a Bull market is in progress, certain expiring Long Call option trades can be analyzed to determine (more…)

By Chris Ebert

viagra1As traders age, all eventually reach a point in their careers of dysfunction, where they cannot preform, very similar to the effects of erectile dysfunction, or E.D.

They watch others ride stocks higher as the Dow soars to 21,000; and feel left out somehow. But it is not necessarily a permanent condition. While all traders will eventually feel inadequate at some point, surviving through that inadequacy eventually makes them more potent than those who have yet to suffer the same experiences in the market.

It’s not easy getting back into the market after one has suffered from dysfunction. It’s intimidating; and there is an unwritten rule to perform. For many, that just drives traders to give up hope and quit trading altogether. However, there is hope for traders willing to seek it. Like any pursuit, be it E.D. or trading dysfunction, there are sharks just willing to hawk their advice for a fee, and many times the advice or products they offer are of no value whatsoever.

Perhaps the best way to overcome trading dysfunction is to start small. Take some small trades without regard for feeling they are inadequate. Base them on back-tested principles. Not every trade will pay off, but those that do will result in a feeling of confidence. Once confidence returns, larger trades can be initiated, and trading dysfunction can fade away.

A big hurdle for all traders is that they say “Every time I buy a stock, the price immediately drops, and as soon as I sell it. the price rises”. Well… why is that? It’s a question all traders needs to ask themselves. “Did I buy at the wrong time?”, “Did I succumb to media hype?”. Then, the failure of the trade causes the trader to question his abilities and leads to a further lack of confidence; and the lack of confidence leads to an even further inability to initiate a good trade.

Many traders end up turning to stock-market indicators to enhance their performance, and some end up getting the very performance they were seeking. But others try using everything from a simple moving average to a complicated Fibonacci retracement and it gets them nowhere. A failure after using enhancements can be devastating. If one can’t survive using the best enhancements available, there is bound to be a decrease in confidence; and the lack of confidence just snowballs into future endeavors, making it even more difficult to initiate a trade.

One can imagine the loss of confidence that would accompany an inability to perform after using the little blue pill. Trading is no different.

SNP Temperature 286

There are plenty of indicators available these days, and all have their pros and cons. But there do exist some simple ones that may help give a trader (more…)

By Chris Ebert

The S&P 500 Temperature can be measured by comparing the actual current level of the S&P index to the level at which certain expiring $SPY options (Covered Calls opened at-the-money 4-months ago) would break even when they expire this week.

When the Temperature is high, it signifies that the stock market is hot; and folks are in the mood to buy. A low temperature indicates that the mood for buying has cooled off and traders are more likely to want to sell on a rally so they can get out of their positions on a high note. Any Temperature above 200 is not just hot, but scorching hot.

The Temperature is not only affected by changes in the S&P 500 index itself, but also by changes that happened months ago. If, for example, the S&P was rising quickly 4-months ago, then the level required for break-even on expiring Covered Calls will be rising today. Thus, the S&P would need to rise just to keep pace with the rise in the Covered Call break-even point in order to keep the Temperature constant.

Without a rise in the S&P index, the Temperature can actually fall; and in some cases that’s true even if the S&P remains flat; and in extreme cases the Temperature can fall even as the S&P is rising.

SNP Temperature 272

Just last week the Temperature was 385, yet this week it is only 272. The change did not come from a drop in the S&P but from (more…)