While most market participants had been focused on Greek elections and Spanish Debt Yields, I am a bit more intrigued by the almost 4% rally into what is likely to be the main event for the month, tomorrow’s FOMC rate decision, and answers to the speculation about further QE.
I am of the firm belief that the Fed will have a very difficult time introducing further QE as has been speculated by many in the press and by some market participants; rather we will see an extension of the Fed’s Operation Twist.
THE SPX IS UP ~8.24% YTD, MORE THAN ANY OTHER MAJOR EQUITY INDEX IN THE WORLD (EXCEPT THE NASDAQ OF COURSE), I AM HARD PRESSED TO THINK THAT IN AN ELECTION YEAR BERNANKE CAN GET AWAY WITH ANYMORE THAN EXTENDING EXISTING POLICY, WHILE CLEARLY STATING THEY STAND READY TO ACT.
I want to fade this rally as I see equities disappointed with anything short of additional QE, and I don’t think we get it. They may get creative, but will likely be the sort of action conceived to confuse the dummies like me, so we could get an initial pop, but then I think much of the last week’s rally will be re-traced.
TRADE: SPY ($135.65) Bought June 22nd Weekly 135 Put for .70
Break-Even on this Friday’s Expiration:
Profit below 134.30
Losses of up to .70 btwn 134.30 and 135, max loss .70 above 135