Now what – More Fireworks ahead?

Brexit fears drove global averages down frighteningly quickly, but stocks reversed just as suddenly to put in the best weekly (+3.2%) performance this year.  



Source: OptionsHouse

As Traders return from the long Independence Day holiday weekend the early tone is guarded with pre-market futures indicating a 100 point drop for the Dow Industrial average and a half a percent drop in the S&P 500. It seems that volatility is back! Volatility measures and anticipates speed of movement, both to the downside and to the upside and if the last several trading sessions have shown us anything it is that the market is currently in a state of flux. It seems that the daily moves can become exaggerated in both directions as traders don’t appear willing to “get in the way” and take the other side of the days directional bias.

Since this is the first full trading week of the month Traders will focus on Friday’s payroll numbers –especially because last month’s nonfarm payrolls of 38,000 were such a disaster! Barrons cites analysts at RBC Capital expecting a payroll number back in the 200,000 range for June.

Prior to Friday’s big economic release on Wednesday, the minutes for the last FOMC meeting will be released which may give some additional insight into what the Fed governors thoughts were pre-Brexit results being known.

I would expect this choppy (albeit with bigger up and down chops) trading to continue possibly until earnings season kicks off in earnest next week when investors get actual specific results from specific companies. Alcoa, which traditionally has kicked off the earnings parade will announce on July 11th after when the number of companies reporting from then will rapidly increase. Currency volatility and fluctuations could have a negative impact on multinationals this season.

In this choppy market it becomes even more critical to define your risk at the onset of the trade. This can be done either by using options instead of stock, called the stock replacement strategy or by using credit spreads instead of naked option sales. Both these strategies (and many more) are discussed and available to be viewed on demand in our webinar archive which can be accessed here:

OptionsHouse Webinars

Options Trades for Stock Investors: Stock Replacement Calls

Credit Spreads – Selling premium with defined risk

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