The uncertainty has been removed and future is great and bright again. Although it actually is not. But market participants are irrational and many times react the opposite way than any logic or common sense would expect.

In the past few weeks, everybody knew that the US economy is slowing down, that it is not in a good shape, and that many reports are actually showing significant economic decline; (for example housing last week showed a 17% loss). Even the so cheered employment data which showed a better job addition than expected, when looking at them closer, actually showed that they were more bad than good.

It should have been the worsening economic data sending the markets down and not the rates hike anticipation. Clearly, the clowns at Wall Street had it all this backwards. But they were able to spook me enough to stretch my options trading to the very limit.

All those reports showed that increasing interest rates would be foolish and premature, sending the fragile economy to a halt, and possibly into another recession. Even Janet Yellen herself admitted this. Removing the “patient” word from the report doesn’t mean increasing the rates or become impatient. She clearly said that she wanted more employment data improvement, more improvement of inflation, and better growth before setting a date where the FOMC would even start talking about interest rates hike.

And yet investors were heavily selling stocks since the employment data came out at the beginning of March sending the market south.

Now, the sky is clear and clean, new horizons are in front of us, and we may see a new upward move in the market.

At least until the clowns at Wall Street start freaking out again over something else. Or until the next month FOMC meeting takes place with a renewed fear of interest rates hike, or when the investors finally realize that the US economy is in bad shape. Until then we can enjoy a new bullish trend.

Since now Janet Yellen is “impatient” (what else would they be when they are no longer patient), the clowns are now happy again. I expect them to be buying this market and move it higher into the new all-time highs.

In a few days we may re-test the 2118 – 2120 levels and if we break through those levels, we might go even higher. The next stop would be at 2140 (upper Bollinger Band) where we may stop and bounce down a bit. And even higher stop could be at 2160 level.

It is however, important to go and reach these levels in order to keep this trend bullish. If now the trend stalls and starts turning back down, that would signal a significant trouble to this bull market as we would be witnessing a trend reversal. If we want this trend to continue, we must go up now.

Of course, I am not arguing that this market is healthy. I also think that this is a bubble constantly inflated by FED’s ignorance and that the bubble will pop one day and such pop will be nasty. But I do not want to be sitting on the sidelines waiting for the pop to happen before I get involved in the market. It may still take another 6 to 8 years and in the meantime, the market may still continue higher. I want to ride that wave, but just be ready for the pop and respond to it if and when it happens.

Happy trading!
 

Trying to assess where the market would go now is close to impossible. We have FED coming out with their report and the clowns at Wall Street will take their leaf reading witch craft ability to guess what Janet Yellen meant by keeping or removing a word “patient” from their report. Based on that they will either panic or cheer and the market will either crash or spikes to new all-time highs.

 

Credit: www.theaustralian.news.com.au
 

One event can make our open bullish trades profitable, the other can ruin them. With options, a time sensitive instrument, we do not have much space for further positioning ourselves for a possible outcome.

We have a bullish trade – a bull put spread against SPX with expiration at the end of the month. If the market tumbles we may not have enough time to recover and not enough margin to roll. And even if we had margin to roll, I am no longer willing to use cash to protect this trade and its profits. I am leaning to steps which would get us out with minimum or no loss at this point.

However, we still can profit with this trade. If the market cheers the FED, we will stay the course, do nothing, and take our profits. If we tumble, we have to act and adjust our trade.

The easiest way to adjust the trade would be to reverse it into a debit trade. That would look like this:

We have:

-3 SPX Mar5 2015 2100 puts
+3 SPX Mar5 2015 2095 puts

We would have to perform the following trade adjustment: buy back the short options and sell new with lower strike:

+3 SPX Mar5 2015 2100 puts
-3 SPX Mar5 2015 2090 puts

After the adjustment, we will have the following trade:

+3 SPX Mar5 2015 2095 puts
-3 SPX Mar5 2015 2090 puts

For this adjustment we will pay a debit (currently 5.50 per spread, or 1,650 total for the entire trade). The profit is the spread width or $1,500. Normally this trade would result in a loss, but we have to add previously received credits. And with the previously received credits our cost for this trade would be 1,365. Thus the profit would be 1,500 spread width minus 1,365 cost = $135 total gain. Since this trade will be exercised, the cost for exercise is quite high, so I estimate the remaining profit would be only around $40.

Not bad prospect for this disastrous trade. Let’s see what the trading would look like tomorrow. If the market goes higher, it would improve our potential reversal of this trade in case the stock market crashes on Thursday morning. If it goes lower tomorrow, our reversal cost may become worse and we will end up with a loss. But the loss may be small compared to a total loss which would occur otherwise.

Good luck on trading and let’s hope the FED won’t spook the investors into a sell off.