Personally I prefer to focus on earnings, but events in Washington have forced us to gaze sadly upon the nation’s capital for market direction as well.
Analysts at Capital Economics and elsewhere, who have good contacts in the political networks, believe that a comprehensive agreement will be reached sometime close to the Oct. 17 debt-ceiling deadline, which is coincidentally the day before the main October options expiration.
That would mean at least another week of uncertainty that will keep stocks rocking and rolling between hope and fear, which is a perfect scenario for the CounterPoint Options system.
Recommendation: Open the S&P 500 Short-Term VIX Futures Index ETN (VXX) Oct. 18 $15 puts. The VXX is a derivative of the VIX (or “fear index“) that allows investors to make short-term speculations on the direction of volatility with an exchange-traded note tied to futures on the VIX.
Everyone remembers that the debt-ceiling crisis in July and August 2011 was accompanied by sharp falls in equity prices. However, there is reflexivity at work. Because everyone knows it, investors may have planned ahead, based on their memories, by discounting the worst possibilities early. So it’s possible that the lows have been seen even if uncertainty continues. See how that works?
That’s the theory, anyway. The reality is that politicians keep finding new ways to disappoint us, so there is certainly room for more mischief in the days ahead. If they occur, the system will help you trade against them at critical points and put you in the best shape for profits once the cloud of uncertainty lifts later in the month. It’s as we are value investors buying “confidence” cheaply now at a time when it is undervalued so that we can sell it back to the market when it is more highly valued.
Jon Markman operates the investment firm Markman Capital Insights. He also writes a daily trading newsletter, Trader’s Advantage, and CounterPoint Options, a service geared towards helping individual traders make steady, consistent profits with the VIX. . Check out his Top Stock for 2012 here.
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