Recapping recent Couch Potato commentary "...Traders are continuing to play a game of 'chicken', making bets based on speculation about possible central bank intervention...fundamentals and technical analysis is taking a subordinate role in influencing the current price action...The technical picture remains bullish for stocks intermediate term direction. It is typical for the major stock indexes to make multiple attempts before finally breaking clear to new highs... "
At this point all eyes are on the U.S. and European central banks as they have all but promised future bond buying programs to stimulate the market. The stars are aligned for Fed Chairman Ben Bernanke & Company to do their next round of quantitative easing. Allegedly, the Fed's primary focus at this point in time is generating employment growth. Very few people are expecting significant job creation any time soon and even the White House is resorting to vague language to present the illusion of employment gains. At its core the Federal Reserve is a banking institution and it is clear that any Ben Bernanke monetary solution to perceived economic problems will protect banks first and foremost. The inevitable poor job numbers provide a convenient cover for the Fed go cart blanch with providing liquidity to financial institutions.
We have yet to hear a detailed analysis laying out how all these quantitative easing programs have contributed to new jobs. I believe the Obama administration is taking credit for almost 4 million new jobs since the recession ended. But, it was reported the Fed is claiming they created 2 million of those jobs? So apparently the White House and the Federal Reserve, without doing any objective quantitative analysis, are both staking a claim to the meager number of jobs created, without any consideration to employment growth that is part of the normal business cycle. Small businesses owners do most of the hiring, and it is highly unlikely that they care or are benefiting from the Feds bond buying programs? What is undeniable is that most of this liquidity is going into financial assets driving up prices.
As an investor, the mantra to 'not fight the fed' is in full force as the central banks worldwide are 'all in' right now. At this point the path of least resistance for the market is up. With institutional investors sitting on ample funds, if the market wants to go higher it will, regardless of the technical signals or fundamentals. In the highly unlikely event the Fed disappoints with the next version of quantitative easing, expect financial assets to crash and burn hard.
SPY Position Update -------------------------------------------------------------
SPY closed at $144.33 on Friday â€“ the September position is approx. $1,000 in the red
The August 13th ouch Potato published a September expiration month SPY bear call spread
The call spread is $1,000 in the red (see tables below)
$144 strike price short call delta is .4714 63% probability this position will be profitable)
SPY Risk Analysis
The recent market surge catapulted the S&P500 index to multiyear highs, putting the SPY at the September $144 strike price short call. Based on the current price action we are anticipating adjusting the current call spread to an end-of-month position.
TLT Position Update -------------------------------------------------------------
TLT closed at $124.03 on Friday â€“ the September position is approx $600 in the black
The August 9th Couch Potato published a September expiration TLT put spread
The put spread is approx. $600 in the black (see tables below)
$120 strike price short put delta is -.1494 (85% probability this position will be profitable)
TLT Risk Analysis
The risk is Treasury notes continuing fall and threatening our September $120 strike price short put.
GLD Position Update -----------------------------------------------------------
GLD closed at $168.44 on Friday â€“ the September position is approx. $6,000 in the red
The August 13th Couch Potato published a September expiration month GLD bear call spread
The call spread is approx. $6,000 in the red (see tables below)
$163 strike price short call delta is .8384 (16% probability this position will be profitable)
GLD Risk Analysis
Precious metals are on tear similar to the start of the year when gold moved from the bottom of its trading range to highs at the end of March. GLD had already surged above our $163 strike short call and jumped above the long call as well. Gold is extremely overbought and it is best to try to wait on prices to settle before doing a trade adjustment. Fortunately, there is ample time prior to the September option expiration, plus this is a quarterly expiration month so that we should be able to roll the trade out to months end.
As mentioned above, we are stalking an opportunity to adjust the GLD call spread prior to the expiration date in a few weeks. Also, we have to respect the current trend and will probably need to adjust the SPY call spread.
Couch Potato Trader Disclaimer
All results reported in this section are hypothetical. While the numbers represented here may have been achieved or beaten by our readers, we make no representation that any individual investor achieved these exact results. The tracking for the plays listed in this section uses closing prices for the day the newsletter is published and it is not meant to imply that any reader actually received those prices (though many often do) or participated in these recommendations (even though many do). The portfolio represented here is hypothetical and for investment education purposes only. It is only an illustration of what type of gains a knowledgeable trader might receive utilizing these strategies. If you don't get close to these results, guess what. It isn't the fault of the strategies.