This past Friday the markets had fits,
from a surprise decision by the Brits
(corny I know–but I couldn't resist).
Fortunately we managed to dodge the shrapnel with a call spread on the RUT yielding a 9-day 23% profit, and an SPX spread expiring for a 9-day 27% gain.
Plus we've got two credit spreads on each of those assets due to expire this Thursday that are looking pretty safe as they were both placed in what has now become the stratesphere.
So that's all good–but what about now? What can we do to turn a profit in the crazy aftermath of the Brexit vote? To find out let's first take a good look at…
The Markets and How They Affect Us
It looks like for the first time in two months we are developing a new range on the SPX…
As you can see from the chart above the SPX made a mighty rebound today that may see some follow through tomorrow.
The SPX double bottomed at 1,991 yesterday with a close up at 2,000. That's a good technical buy signal and the futures began rising not long after the close. European indexes were sharply positive last night which carried over into the U.S. markets with the S&P futures up +24 early this morning. That positive open squeezed the shorts for a 35 plus point gain today.
Funds are still sitting on near record amounts of cash and this Thursday is the end of the quarter. If they are going to window dress their portfolios, they are running out of time. With stocks at three-month lows, it is the perfect buying opportunity.
There is also a pension fund rebalance at the end of June. Analysts estimate pension funds needed to shift up to $18 billion into equities to keep their ratios intact. Pension funds typically hold x% of bonds and x% of equities. Bonds have risen so strongly that the ratios are off so funds need to sell bonds and buy equities–another cause for a short term bounce.
That could create a nice upswing over the next fews days–one we are going to try and take advantage of.
But aside from any post Brexit bounce–world economics—and the economy here at home are not looking good.
The Richmond Fed Manufacturing Survey for June released this morning declined from May's -1 to -7. That ties with the March 2014 lows and together that is the lowest reading since January 2013. All of the components were negative with new orders falling from zero to -14 and order backlogs falling from -13 to -17.
Plus the inventory to order gap collapsed from -19 to -41. Those components suggest July will be weak as well. The average workweek fell 10 points to -4 suggesting employment is going to be down for June. Employment and wage expectations turned negative for the first time since 2009.
The separate services survey fell from 11 to zero, but the employment component remained flat at 18.
The last GDP revision for Q1 rose from +0.8% growth to +1.07% growth. This was the weakest quarter in the last year, but Q2 is shaping up to be significantly better.
Meanwhile total earnings for the S&P 500 index are currently expected to be down -5.9% from the same period last year on -0.7% lower revenues, with earnings growth expected to be in the negative for 10 of the 16 S&P sectors.
The bottom line is any bounce in the markets is liable to be short lived based on both fear and fundamentals–the question is…
How Do We Make Money on It?
Both the fundamentals and now the chart tells us the market is starting a new downtrend–possibly rangebound but still lower than what we've seen. However there are still opportunities on both the call and put side.
Our first trade is a put spread on an index that is showing one of the strongest and cleanest uptrends in the markets. We'll be counting in a little dip to get filled for a generous credit just under support.
And for our Roth Retirement trade we're looking at a FAR out-of-the-money call spread for a conservative 10-day 20% profit.
We've got two good looking trades lined up to take advantage of a market ready to move–so let's get started…
Click here to gain access to today's picks.
Keep up the good work,
Peter