FOMC Minutes – Jobless Claims – China Econ Releases Sun Night. These Are Speedbumps. Buy Puts

July 10, 2013

Yesterday the market continued to push higher. This last leg of the rally has come on very light volume and I don’t trust it.

Overnight, trade numbers from China were very weak. Their market rallied on the notion that the PBOC would take action. I’m not so sure. Economic conditions have been slipping and they seem content with current growth. I’ve even heard rumblings about austerity. China will release industrial production, GDP and retail sales Sunday night. These numbers could be very light.

The FOMC will release minutes from the last meeting this afternoon (two o’clock Eastern time). The Fed Chairman will speak at an event after the close. Many traders believe the rhetoric will be dovish. That optimism was also present during the actual FOMC meeting and traders were disappointed.

I am not looking for a massive shock like we got a month ago, but the minutes and “Fed Speak” will weigh on the market. Last week’s jobs number will keep taper talk alive.

Applicants postpone filing for unemployment benefits during major holidays. That means initial jobless claims could spike tomorrow morning.

Wells Fargo and Chase post earnings Friday morning. I believe banks will make nice profits, but comps will be tough to beat. These stocks are trading near their highs for the year and they will be lucky to tread water after the news.

Economic conditions in the US will be sluggish while the sequester runs its course. We will be lucky to maintain a 2% growth rate in Q3. China is slipping, emerging markets are rolling over and Europe shows no signs of life. The IMF could lower global growth projections for 2013 in the next few days.

I am bearish, but I’m not looking for a massive selloff- just a pullback to SPY $162. My forecast for a trading range this summer is still intact and I do not see a catalyst push us through to new highs.

The market is stretched at the upper end of the trading range and the above-mentioned events could spark a small round of selling.

I am only interested in shorting this rally. The bounce has run its course. I bought puts this morning and I will add if the reaction to the FOMC minutes is negative. I will use a close above SPY $165 as my stop.
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