Markets Erase Last Week's Gains And Then Some
Broader Market Weekly Performance:
Markets erased last week's nice gains completely and then some this week. The first half of the week was fairly quiet, even boring. However, Wednesday markets started softening and Thursday and Friday resulted in a full scale smack-down.
The Non Farm Payroll and Unemployment Rate reports were what spooked markets Friday as weak numbers missed lofty expectations. The size of the labor pool also shrunk which means the number of people looking for/wanting to work decreased which reflects frustration by job seekers giving up. Oil was bloodied Friday as well posting it's biggest daily loss of the year: -3.8%
Earnings continue to be strong but the labor market is definitely not as strong as many hoped; is that really a surprise to anyone though? One positive out of Friday's reports is that it inches the door back open for an opportunity for QE3.
All in all, markets still appear healthy and there many steps of support on teh downside if weakness continues. The S&P is only back to where it was 2 and 3 weeks ago and held the April weekly closing lows Friday. Strong support lies below at 1358 and in the 1350-1344 area, the location of the rising 20 week moving average and the July-August 2010 top.
Navigate wisely and stay profitable, my friends. Happy trading!
Monthly Trading Service Commentary:
After a quiet start, it was a busy week in the Monthly Trading Service. Thursday we deployed 2 put spreads: One on SPX and another using RUT which created an Iron Condor with an existing call spread.
Friday, during the beat-down that ensued from the market open, we initiated an additional put spread on QQQ and closed the call side of the RUT Iron Condor created the previous day:
May 860/870 RUT Bear Call Credit Spread (part of an Iron Condor) closed for +9.52% in 7 days
The Monthly Trading Service now has 3 positions open for May expiry. The positions remain nicely out of the money and have strong support areas working for them if further selling ensues. Any relief bounce in the market, which is likely after such a sloppy end to the week, may provide a nice opportunity to leverage the current spreads into Iron Condors.
While losses are unfortunate, they are a part of trading. Looking at past trading years you will see drawdowns like this do occur and ultimately, how we prevailed. This is not a justification, merely a reminder that this situation is still within the realm of normal portfolio gyration. While it may be uncomfortable and is surely no fun, my position sizing allows for these drawdowns providing enough capital to recover. See past year's results and let them speak for themselves. For more information please read: Generating Alpha Comes With Volatility
Weekly Trading Service Commentary:
This week we opened an Iron Condor Spread on SPX which expired worthless for full profit, despite markets getting beaten down Thursday & Friday:
May04 1350/1360/1425/1435 SPX Iron Condor Spread - expired worthless for +4.17% in 2 days.
We deployed the position as the market was consolidating and weakening approaching the to be released jobs data. A safe, conservative opportunity presented itself to scalp premium and we jumped on it. Ultimately, despite the butt-kicking that ensued Thursday and Friday, our Iron Condor was never in jeopardy and there was no nail biting during expiration Friday - just the way we like it!
Furthermore, we were able deploy a new SPX spread for the next weekly expiration, May 11, on Friday taking advantage of the further expansion in volatility and nice premium available far OTM.
The Weekly Trading Service now has one position open for the coming weekly expiration cycle and will be looking to potentially open 1 additional new position this coming week. We'll have to see what opportunities the market provides us, if any, for the new week.
While losses are unfortunate, they are a part of trading. Looking at past trading years you will see drawdowns like this do occur and ultimately, how we prevailed. This is not a justification, merely a reminder that this situation is still within the realm of normal portfolio gyration. While it may be uncomfortable and is surely no fun, my position sizing allows for these drawdowns providing enough capital to recover. See past year's results and let them speak for themselves. For more information please read: Generating Alpha Comes With Volatility.
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.
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