by Ken Trester | August 1, 2014 8:20 am
Questions about whether the Fed is on the ball or behind the curve spurred a “sell first, ask questions later” stocks trading mentality that saw the S&P 500 break near-term technical support at 1,950 in Thursday’s session.
The benchmark index fell a whopping 39 points, or 2%, to close at 1,930.67 on the day. The Dow Jones was off 317 points, or 1.9%, and the tech-heavy Nasdaq closed lower by 93 points, or 2.1%. All three major indices ended at or near their lows of the day.
Traders of stocks were also spooked by headlines of Argentina’s second debt default in 12 years, Israel’s move to expand its campaign on Gaza, ongoing tension in Ukraine, tougher sanctions on Russia that had European companies warning of an economic hit and a dramatic rise in U.S. labor costs recorded in the past two years.
If the S&P doesn’t retake this level in the next two to three days, there is a good chance that 1,900 will be tested. Today’s employment data and ISM manufacturing report could fuel further speculation that the Fed may have to raise rates sooner than expected.
In light of all of this, our indicators are now giving bearish readings, so buy puts on any rally. However, be sure to keep a few calls mixed in your lineup as well, in case the bulls can mount a comeback today and into next week.
I’ve got a put option for you on one of the most familiar food stocks that my analysis showed will likely continue pulling back over the next few weeks.
Buy the Tyson Foods (TSN) Oct 35 Puts (TSN141018P00035000) at $1.00 or lower. After entry, take profits if the stock price hits $34.50 or the option price hits $2.10. Exit if the stock price closes above $38.50.
InvestorPlace advisor Ken Trester brings you Power Options Weekly, which delivers 5 new options trades to you each Friday. It’s the perfect ‘bridge’ between investing in ordinary stocks and the turbocharged world of options trading.
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