For the mid-week ending July 9, 2014, the S&P500 broke a two day losing streak today gaining over 9 points after the FOMC Minutes. Also, Alcoa kicked off earnings season Tuesday and beat estimates.
The Federal Open Market Committee (FOMC) released its minutes for June. The plan is to end quantitative easing (QE) with a final $15 billion reduction in October of this year. Rate hikes will not start before March 2015; and the rate of interest on excess reserves for overnight deposits will be set below the IOER rate (a negative rate in which the banks will pay the Fed).
Earnings season started with Alcoa posting a quarterly profit of $0.18 per share; this is 50 percent better than expected. This was an important quarter for the company, marking its return to profitability. Wells Fargo will post on Friday.
If this earnings season is solid, then the markets will likely make new highs. But pundits, like market strategist Mike Ingram of BGC Brokers, believe the bull market is living on borrowed time.
The turmoil in Iraq continues with Prime Minister Nuri al-Maliki accusing the Kurds, in the autonomous northern region, of supporting the ISIS militants, the Baath, and al-Qaeda. In the interim, Kurdish forces were in areas where the jihadists were present. Iraqi Kurdish president Massud Barzani vowed to stay the fight.
In Ukraine, government forces continue to repel the pro-Russian militants as key towns have been recaptured. Moscow has been uncharacteristically silent, while still allowing weapons and fighters across its borders into Ukraine. Privately, Russian officials admit to fearing further sanctions by the U.S. and Europe.
With little economic news this week and the two early down days, we expect the markets to continue its choppiness, and volatility to grow. If earnings from Wells Fargo is good on Friday, then we may see an attempt by the markets to make new highs.
For option traders, place Put credit spreads at 1.75 standard deviations. The expected price of the SPX at the close on Friday will fall within 1940-2005 (or 2 standard deviations).
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