Short-Term Trading Strategies for a Better-Than-Expected GDP Report

by: Yatin Karnik

U.S. stocks closed moderately higher Wednesday on the heels of the post-FOMC statement, with the Dow Jones Industrial (NYSEARCA:DIA) average up 95.59 points, or 0.76%, to end the day at 12,690.96. The S&P 500 (NYSEARCA:SPY) Index was higher by 8.42 points, or 0.62%, to finish the day at 1,355.66. Nasdaq (NASDAQ:QQQ) added 22.34 points, or 0.78%, to close at 2,869.88.

Speaking at a first time ever post-FOMC meeting press conference Wednesday, Ben Bernanke said he expects growth to be below 2%. Economist consensus expects 1.7% growth. The Commerce Department releases the GDP report for the first quarter at 8:30 a.m. Eastern on Thursday morning.

Bernanke said:

Most of the factors that account for the slower growth in the first quarter appear to us to be transitory. They include things like, for example, lower defense spending than was anticipated, which will presumably be made up in a later quarter; weaker exports, and given the growth in the global economy, we expect to see that pick up again; and other factors, like weather and so on.

He expects the U.S. to grow at a far greater pace for the rest of the year. The Fed is forecasting an annual growth rate of 3.1% to 3.3%.

The housing market is expected to be a drag on the economy for most of the year if not the rest of 2011. High unemployment is here to stay through the end of this year, with only marginal improvements at best. But better than expected company earnings for the most blue chips due to the weaker dollar and better than expected global demand will aid in propelling the U.S. economy higher.

If we get a better-than-expected GDP report and stocks climb higher, it might pose a trading opportunity for the short term. I will be looking to short the market by getting long SDS (ProShares UltraShort S&P) or SPXU (ProShares UltraProShort S&P). You can also gain by getting short exposure to SPY or SSO (ProShares Ultra S&P). If the market takes a tumble, the Dow Jones Industrials will follow. To benefit, you can get long exposure to DXD (ProShares UltraShort DOW) or SDOW (ProShares UltraProShort Dow). You can also get short exposure to DIA or DDM (ProShares Ultra Dow).

For more experienced traders who want to bet on specific segments within the S&P Index from either the long or short side, there is IVV (which tracks large-capitalization U.S. stock market performance), MDY (which tracks the S&P MidCap 400 index), IWM (which tracks the Russell 2000 index) and IJR (which tracks S&P SmallCap 600 index).

Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in DIA, SPY over the next 72 hours.