7 Minute Read

Under Pressure

July 31, 2014

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Markets trade at intraday lows going into the last hour of trading Thursday July 31st. The sell-off has the overall S&P 500 trading near the flat line for the month of July. News headlines attribute the sell-off to general earnings misses, Eurozone CPI weakness and rising concern of overvalued equity prices.

A simpler viewpoint would argue that traders and investors are concerned about how far we’ve run and now that the market didn’t rally on the Federal Reserve’s policy statement on July 30th there’s little for bulls to hang their hat on. There is a slew of economic data due out Friday August 1st including the Unemployment Rate. We’ve moved into an environment where a trader has to wonder if good news will be treated as the opposite – a negative for stock prices. In this market, strong economic data can be interpreted as an indication that we’re closer to a Fed policy change, and thus closer to a world where stock prices aren’t propped up by Bond purchasing.

The patterns on the broad indices show weakness across the board. Today is a very good day to review your watch lists – both bullish and bearish and be prepared for rising volatility. If you’re a credit trader, it is smart to control your gamma risk by either hedging or taking losses before strike prices move in the money. Next week will bring some key earnings reports, but in large there will be fewer companies reporting as we’re moving towards the end of earnings season for the 2nd quarter.

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