Wednesday, June 22, 2011

Reviewing Yesterday and Todays Strategy

We had a nice rally in the market yesterday; we broke the prior day’s highs and ran strongly through several minor resistance levels as well as a major s/r around the 1295 handle. I took profits on the SPY calls and VXX puts, I felt the risk reward into the Greece vote of confidence was too far weighted to the risk side. It became evident after the vote that the event had been priced in and we had a shallow sell the news pull back in equities and the euro. Overall today though we are pushing higher, we have some more serious resistance at the 1300 handle which I feel is a psychological pivot point in the market. From here it really depends on how the market digests the Fed statement at 1230 there seems to be a slight expectation of some more easing, maybe in some different form, but definitely a continuation of SOME accommodation. I stress that because an all-out QE3 would be a surprise to this market and we would see a pretty aggressive rally. Obviously any hint of tightening will lead to a steep sell off. So what’s the strategy into the meeting?
Strategy 1
·         Fed does QE3/Keeps Interest Rates Low
·         Unlikely/Market Surprise
·         Strong Rally
·         Buy 4 GLD July 150 Calls
Strategy 2
·         Fed Keeps Interest Rates Low/Provides Additional Alternative Accommodation
·         Market Should Have This Priced In
·         Sideways/MixedàEuro/Greece Headline News Focus
·         Hold current GLD position and see mkt reaction
Strategy 3
·         Fed Tightens
·         Surprise
·         BIG sell off
·         Sell Current GLD position/Buy 4 SPY August 129 Puts

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