Let me be clear -- Japan and the U.S. are two distinctly different economies, but can we draw anything from the 18% assault on the Nikkei in the last two weeks? Will trade south in stock indexes in the East and across the pond tell investors anything about a correction domestically to come? We are comparing to some extent apples to oranges, but both the Nikkei and S&P in my opinion got way ahead of themselves and appreciated for similar reasons… unabated stimulus.
U.S. markets were relatively flat when U.S. Manufacturing PMI contracts came out at their weakest levels since June 2009 today… could this be the catalyst or will it be this Friday's NFP number? Several comments indicate a flattening or softening in demand due to a sluggish economy, both domestically and globally. My take is we get the 7-10% correction in stocks and we get a bounce in Treasuries. So moving forward, investors may be able to buy stocks for sale in the coming weeks and fade the rally in Treasuries. Select clients are in NOB spreads playing the appreciation in the debt market and are very eager to re-establish bearish plays in 16' Eurodollars in the not too distant future.
As for a trade in the S&P, let's assume the first stop on this correction is the 50 day MA (dark blue line) just under 1600. A 38.2% Fibonacci retracement, 100 day MA (light blue line) both come in around the same level of a trend line that has supported since November... let's make that our second objective. Off the record highs made 5/22, this would amount to an 8.3% deprecation… consider yourself warned. Constructing the trade, I like bearish option trades in August and September contracts in the ES.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.