An Ignoble Experiment: Hawks

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Hawks

Yes, those of us in Chicago have been anxiously watching our Blackhawks play in the Stanley cup, but there are other Hawks that have called our attention over the past weeks.

We’ve noticed six weeks of hawkishness from the Fed with talk of the Taper. With a mixed bag in the markets, it’s hard to tell what may happen at the next FOMC but Goldman Sachs presents an interesting case.

Via Goldman Sachs,

In our view it would be risky to deliver a hawkish monetary policy message at a time when growth remains sluggish, inflation continues to trend down and market inflation expectations are dropping sharply. While we do not expect the committee to deviate much from the existing message and keep all options open, we anticipate that Fed officials will, on the margin, try to calm markets at the June 18-19 FOMC meeting.

More specifically, we anticipate the following details at next week’s meeting:

First, we expect that the FOMC statement will show only modest changes, focused on the first paragraph discussing the economy. In particular, we believe that the committee will acknowledge the recent decline in inflation by, for example, stating that “measures of underlying inflation have trended lower in recent months.” A minor downgrade of the description of the housing sector might also be appropriate, changing “strengthened further” to “continued to recover.” But we expect no changes to the current language regarding either asset purchases or interest rate hikes.

Second, we anticipate modest changes to the committee’s growth and inflation forecasts in the Summary of Economic Projections (SEP).

Finally, we expect Chairman Bernanke to strike a generally dovish tone at the post-statement press conference.

Trade well and follow the trend, not the perma-bull OR perma-bear “experts.”

---Larry Levin

In conjunction with TheStreet.com and Bar Chart, Trading Advantage Chief Market Strategist Alan Knuckman provides a daily morning update on the global action in stock futures, gold, oil and interest rates.

Congratulations to Mark Pygott

Congratulations to Mark Pygott the Student of the Day. Mark had a successful trading day in the ES and NQ futures. There seems to be no summerslow down for these moving markets and Mark took advantage of the volatility. Nice job Mark!

Mark pygott =$410

NOTICE: Testimonials are believed to be true based on the representations of the persons providing the testimonials, but facts stated in testimonials have not been independently audited or verified. Nor has there been any attempt to determine whether any testimonials are representative of the experiences of all persons using the methods described herein or to compare the experiences of the persons giving the testimonials after the testimonials were given. The average reader should not necessarily expect the same or similar results. Past performance is not necessarily indicative of future results. No person was compensated for providing a testimonial.

OPTIONS: Volatility Commentary

---Steven Lee / Michael Shorr

In a recurring pattern, Asian stocks fell sharply in early trading only to recover some but not all of its losses by the close. Eurozone inflation rose to 1.4% y/y from 1.2% in April. This puts inflation still way below the ECB's target rate of just under 2%. Greece is actually in a deflationary state as their inflation was -0.3%. The GDP in the G20 moved up by 0.7% in Q1. We are seeing slow downs in China, South Africa, Mexico and India but GDP in France and Italy is contracting at a slower pace. University of Michigan/Reuters Consumer Sentiment have shown that consumers have been in relatively good spirits as of late, so a dip in the consumer sentiment index back to 82.7 vs May's 84.5 not too surprising. Market reaction to this report was quite muted.

There is a whole other world that has opened up to option investors/traders in the past five years or so. The ETF space. An ETF, or exchange traded fund, is a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. By owning an ETF, you get the diversification of an index or sector fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund. Most importantly for us and our students is that there are options traded on many ETFs (where they are not on mutual funds). The ease which we can identify a trading opportunity in a particular sector and then quickly act on it is unparalleled. Take for example the situation in Asia. We have slow downs in India and China a very volatile economic climate in Japan. There is also a lot of uncertainty in the smart phone space which brings South Korea into the mix. EWY is the MSCI South Korea Index Fund ETF. It has a strong correlation to Japan over the last 6 months and is strongly tied to the smart phone industry both which are experiencing possibilities of bearishness. Add to these fundamentals the technical analysis and we identified a possibility of a continued down draft. A trade signal was generated to purchase the July 51/54 put spread. Happy Father's Day to all the great Dads out there! See you Monday.

FOREX: Currency Spotlight	---Ed Moya

The latest forecasts from Goldman Sachs might lead investors to think euro may not be worth focusing on. With the current rate near 1.3300 for EURUSD, volatility appears to be contained for the next 12-months of trading. The Goldman forecast for 3-months is 1.34, while the 6month outlook is 1.37 and 12-month is 1.40. The key resides with the second half recovery in the eurozone. The political uncertainty may grow in the summer, but the quiet start to European summer of turmoil may help the euro rally sooner towards that 12-month target.

STOCKS: Watch List

---Charles Moon

After a small push higher in the markets, we slide back down until early afternoon. There was a little tug of war going into the close, but the selling pressure prevailed as the Dow closed down over a 104 points. Both the Dow and S&P 500 closed the week shaving off 1% in losses. The Nasdaq had the biggest loss for the week being down 1.36% as the volatility shook up the markets. This is the 3rd out of the last 4 weeks we have finished negative for the week. Profit taking along with a bit of aggressive selling has been taking place as the "auto buy" mode has shifted as of late. Look for the volatility to continue this week.

With fear starting to raise as indicated by the VXX and VIX moving higher recently, the upside play is getting to be a bit hair-raising and a grind at the same time. While the sells have been fast and rewarding, both have short time frames to garner profits as the bounce backs have been quick and fierce. Watch the markets closely to help dictate what you want to do in the short term. As the markets drag down lower, stocks are sliding fast along with it. The Financial Sector is a great example of this. They have been moving along with the markets, and have been a very volatile sector as of late. Watch the stocks you have interest in to see if there is any direct correlation to how the markets swing, and it can help you navigate through the market conditions. Open Position: INTC, ADBE, JBL Stocks to Watch: INTC AAPL GOOG IBM AMZN ADBE FB TSLA GRPN CTXS CSCO NTAP JBL BAC C PRU WFC GS JPM MS CMI CAT NFLX WDC GE AIG LULU LNKD DIS KORS COH FOSL CROX STZ NKE UA CHKP JNPR POT GMCR HOG YUM LOW HD LEN TOL V MA AXP DFS LVS MGM TSL FSLR JASO

FUTURES: Technical Data

ES 1629.25 / 1619.75 POC… 1620.50 YM 15085 / 14993 NQ 2954.25 / 2937.75	NOTES FROM THE PIT Click Here To Read

COMMODITIES: Play of the Day

---Patrick Assalone

Gold continues to head lower with the market headed lower again on Friday. Based on our educational methodology, we are only looking for short entries with a break out into white space down below the contract low.th a break out into white space down below the contract low.

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