Friday, September 9, 2011

Closing Trade for 25% 2week return - Thesis intact, however Sept events could prove for a market meltdown

PFG closed the short vol, short market thesis leveraged trade today at the close. The total return on the trade was 25% over two weeks.  In spite of feeling secure in our thesis, this trade no longer feels fresh and has caught the short term wave of two weeks of flat market action.  A better entry point will present itself in September.

Sept 9th

$ES_F = 1158.25
$GC_F = 1855.40
SPY Oct 100/125 Strangle = 2.86

Near Term Market Outlook

The market needs jobs, corporates are cash rich.  Until these two are fused at the hip, it will be very hard for the market to produce an extended rally.  Currently, weak or strong economic news is not helping financial stocks, and PFG believes this sector has no near term catalyst.  This outcome leaves the market starting from a position of weakness that needs real solid news/data to get some legs.

As with any push/pull market (jobs vs economic data), the end result is a grind, rather then a gap.  Thus, we still feel short vol, short market is still the best thesis to apply to this market, however it is becoming a little tricky to find the right tool to get the sharpest leveraged trade without getting involved in the cross currents of gold, rates and financials.  Better to wait for now.

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