Draghi's Comments & Expected QE3 Juice Markets To Relative Highs

Broader Market Weekly Performance:
Dow +1.65%
S&P +2.23%
Nasdaq +2.26%
Russell +3.72%
www.BookingAlpha.com

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MARKET UPDATE:
Markets rocketed to multi-year highs this week after weeks of very tight trading. The impetus for moon shot was Draghi's, head of the ECB, commitment to sterilized bond buying. For an explanation of what that exactly means go here. The recently lagging small caps outperformed with +3.7% move to the upside.

Non-Farm Payrolls for August were released Friday but came in lighter than expectations. Actual Non-Farm payrolls came in at 96K vs. 125K est. Prior month 163K was revised to 141K. Private payrolls printed 103K vs. 134K est while the prior month 172K was revised to 162K.

The ECB commitment and Non-Farm miss has the market already spending the anticipated QE3 expected to be launched by Bernanke this week at the Fed meeting. Expectations are for helicopter Ben to come to the rescue once again.

With the market feeling giddy heading into the Fed announcement later this week we expect the market to grind higher or move sideways the first part of the week; any early week pullback should be minor. As the latter week approaches we could see one final push higher before markets digest the recent move by backing and filling the gaps created taking it to relative highs.

Things are getting a little stretched here but there could be a final push to S&P 1450ish to squeeze out the remaining shorts.

Navigate wisely and stay profitable, my friends. Happy trading!

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BOOKINGALPHA UPDATE:
Monthly Trading Service Commentary:
We created Iron Condors this week by selling put spreads to compliment our existing SPY and DIA call spreads. We received nice premiums for both which will mitigate some of the risk of the call spreads in response to the recent market run-up. The IWM call spread has not been Iron Condor'd with puts yet but we plan to do so this coming week.

The DIA and IWM calls remain OTM despite the market jump. The SPY is feeling some heat but with the indexes at multi-year highs and gapping far above the daily Bollinger Bands and kissing the weekly Bollinger Bands we are comfortable with 2 weeks left until expiration. Note that a move above a Bollinger Band only happens <5% of the time, so this move is extreme.

A large gap exists down to the short, medium, and long term moving averages as well. The short term averages are clustered below Thursday's gap open which will lend support on any pullback and gap filling, thereby protecting our put spreads.

For our call spreads, we have some nice adjustments and hedging strategies available to us if required, including:

1 - The traditional roll adjustment: Where we roll to a later expiry (Sep Quarterly or October) to mitigate risk. This is the same approach we used when we rolled the existing DIA & SPY spreads from Aug to Sep for additional credits on both trades.

2 - The Butterfly Hedge: Where we open a debit spread to completely hedge out the risk of the existing call spread. The goal is to open the debit for the same amount of the net credit (or less than) of the existing call spread or Iron Condor, if applicable.

3 - The Kite Spread Hedge: Where we buy a lower strike ITM call and sell additional credit spreads at the existing strikes to pay for the long call to hedge out the existing call spread risk.

We will provide further details if required to employ any of these strategies. We simply want to make the point that we have multiple options available to us if things get tight(er) for our current trades. With the market on fresh highs and doing so with large gaps up we are not sweating too profusely here.

The The Monthly Trading Service continued its profitable run for August posting an +11.04% gain after the +4.70% gain for July.

Since May the Monthly Trading Service has posted a +31.42% portfolio gain while always maintaining a minimum 20% cash reserve.

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

Monthly Trading Service YTD vs S&P 500:
+9.83% YTD BookingAlpha Monthly Advisory
vs.
+14.34% YTD S&P 500
See Trading Record


Weekly Trading Service Commentary:
After weeks of strong gains due to a more aggressive trading style in the Weekly Service, Friday we took a step backwards regarding the SPY closed this week for a loss. We made many successful roll adjustments which mitigated our overall cost (and loss) of the trade. But with the market gapping higher and holding this week, we deemed it appropriate to let this trade expire allowing us to move on to new opportunities.

The DIA Strangle remains open and while slightly underwater currently, we have high confidence in the position. Our confidence stems for the planned hedges to the trade set to occur most likely in the coming week.

We have already executed one hedge with perfect timing by opening and closing a Debit Spread Hedge on the put side to reduce our overall debit amount for the Strangle. We plan to rinse and repeat this strategy on both the call and put side of the trade once again shortly.

Here's where it gets a little weird, we are actually excited about being able to move on past the SPY debit spread that expired this week for a loss. We say "excited" because the Weekly Service has ventured outside of it's core strategy of spread scalping in response to the very different market of 2012 versus the previous 3 years.

Through exhaustive analysis by our team of analysts and working with an external consulting team, we have determined that the most appropriate and profitable path forward is not to continue the aggressive more active trading of late but to return to our proven scalp strategy that has worked for years with some minor adjustments, including:

1 - Trade entry parameters (technical indicators, volatility analysis, etc)
2 - Trade duration (days in the trade)
3 - Much tighter stop losses than the current 35% (lowering threshold to no more than 3x the expected profit on the position)

We look forward to shaking off the recent volatility in the Service and forging ahead with our redefined core competency of scalp trading with tight restrictions.

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 YTD vs S&P 500:
-25.69% YTD BookingAlpha Weekly Advisory Portfolio
vs.
+14.34% YTD S&P 500
See Trading Record

Check out the BookingAlpha Trading Record

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