Investors remain nervous today with the potential of the US getting involved in yet another conflict. Secretary of State John Kerry is talking tough announcing that the US will hold Syria accountable for using chemical weapons. Many European indexes were down 1.5 percent on the growing concerns with oil up, gold up, and the US Dollar up. Meanwhile adding to investor worries the Wall Street journal reported that the US Government will hit the debt ceiling by the middle of October, setting the stage for another dust-up over raising the debt ceiling to allow for more borrowing.
Market Direction Intraday and Spy Put Options
The intraday chart for today of the S&P 500 set for 5 minutes shows that there was no opportunity at the open to buy Spy Put Options for a move lower. The gap down this morning was followed by a quick bounce back and then more selling. A bottom was put in by 11 AM and the next rise is when I bought my Spy Put Options for today’s activity. I will not be holding them overnight but will be selling them during the day.
At the time of writing this intraday article, the S&P 500 has made a new lower low slightly below the earlier low in the morning.
All the Syria issues come on the back of US home prices which for June show a rise of 2.2% which is slower than May but again shows that annual home price growth was at 12.1% for June which is reasonably strong but has some analysts worried that housing may be slowing. Meanwhile 12.1% is close to a multi-year high which does reflect that the Fed could conceivably begin scaling back Quantitative Easing by September or October.
Meanwhile consumer confidence was almost at a 5 and a half year high reaching 81.5 percent. July’s reading was 82.1% which was the highest since January 2008. Personally I do not put a lot of investing confidence in the consumer confidence numbers. They were very high in 2008, 1999 and 2000 despite the fact that the stock markets were in the verge of big pullbacks. Instead consumer confidence tells me that people are willing to spend, which helps keep the economy afloat but consumers are fickle. One little backstep and they can immediately pull back their spending and borrowing. Still though its nice to see such good numbers but I still remember the last time the numbers were this good was 2008 before the collapse of the markets in the fall.
1650 On The S&P 500
The S&P 500 failed to break through and hold the 1670 level yesterday and late in the day it closed below 1650. Today the S&P 500 market direction collapsed quickly below 1650. The break of 1650 although caused by investor fear, has still done technical damage to the market direction uptrend and may have ended it for the present time.
Remaining Market Direction Support Levels
There are two remaining support levels built up during the past 6 months. The first is 1600 on the S&P 500. The market direction down is perhaps strong enough to push lower quickly and could reach it within a few days or later this week.
The next level is much stronger and is a small band that runs from 1570 on the high side to 1555 on the low side. Reaching this level could stall any further push lower and is a level in the market where many stocks will have returned to fairly valued territory.
Market Direction Outlook Intraday August 27 2013
I explained yesterday in my intraday comments that the 1670 level had to be reached and held, otherwise the move will be back to 1650. With the break of 1650 the market direction should drift here and probably begin a descend back to 1600 where there is weak support.
Market Direction Strategy
I will be continuing to trade the market direction to the downside, but it is important to understand that this change to down has been caused by intervention and not an economic issue, yet. US involvement in Syria may cause economic changes if it was to occur, but there are no indications at this point that the US will send in any kind of land forces which is among the biggest and most costly to mount. Instead a co-ordinated effort on the part of western allies may be the choice taken which could result in air operations instead.
The unknown aspects of intervention is what always hurts the markets. The market direction could shift quickly back to up if there is a quick resolution to the Syria problem. A quick resolution could result in a giant jump up which is why I will be trading to the downside but staying with daily trades. Meanwhile any jump back up even if it were strong would have to be suspect until 1670 is crossed and held. If that should happen over the next few weeks the biggest test is the 1680 level which I discussed in yesterday’s intraday comments.
Trading Market Direction To The Downside
It is important to trade what is before us. At this point the S&P 500 is back below the 50 day simple moving average (SMA) which will cause concern among investors. More selling will ensue especially if the Syria issue is not quickly resolved. I will be trading primarily to the downside. If any of my naked puts get in the money I will either roll them sideways if I like the put strikes I have sold, or down if I wish to be in the stock lower. I will be committing further capital once I see what support levels are reached and which ones are broken.
Naked Calls In Present Market
Naked calls are definitely an area I may consider but I would most like do call credit spreads as this market direction could quickly turn back up if there is a quick resolution. The call credit spread can help protect against losses and certainly would limit losses.
Naked Puts Turned to Put Credit Spreads
For other stocks, investors may want to consider put credit spreads to support naked put positions. For example this morning Johnson and Johnson Stock is continuing lower and for investors not interested in owning shares who have sold the $87.50 naked put (which I did), they may want to roll lower and add in some purchased puts to protect against any further downside action. This is not what I will be doing but for nervous investors it is always a choice to consider as a put credit spread will buy some protection against further downside movement.
Covered Calls – In The Money
One of the better ways to protect stock positions is the selling of in the money covered calls. Depending on your outlook for the stock and your degree of comfort investors normally decide how deep in the money to sell calls at. It has to be remembered that in the money covered calls opens up an investor to the possibility of assignment especially if there is a rapid and swift jump back in the stock or market direction. But by selling in the money covered calls an investor can earn some income, protect against additional downside action and buy back the in the money covered calls as a stock moves lower, which then locks in the profit from the in the money covered calls and frees the stock from any possible assignment.
Summary of Intraday Outlook For August 27 2013
The type of market we are in is common. Events happen continually that cannot be predicted but by having strategies available to both profit from a market direction change as well as protect against losses, investors can weather any market condition and indeed earn substantial profits throughout periods of turmoil and uncertainty.
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