Today should prove to be volatile in the US Index futures markets. In a speech at the Atlanta Fed Conference this morning, a cautious Bernake stated that although things have improved, conditions are far from normal. Bernake’s comments seemed to express an opposite sentiment to those of Citibank’s chief, Mr. Pandit and Treasury Secretary Paulson who have been telling people the worst is over.
He stated that the Fed stands ready to inject liquidity into the market, however it does not want to become a “moral hazard” by providing financial institutions less incentive to work out their own issues.
Retail sales gained slightly when automobile sales are excluded. However, the .5% gain is more than twice the expected amount which is positively affecting index futures this morning.
The question is how to best play these divergence messages from the economy. Here is one method I use:
Every morning, I determine what I believe is the best way to play the unfolding economic and technical factors of the day. Today, it looks like the SP 500 E-minis are the way to go. It casts the broadest net of the Index E-minis, across all sectors and industries. This does not mean that I am going to make a trade in the SP E-minis, but I will set up the structure to trade and will enter the market should the situation present itself. As you can see from the 15 minute chart, the ES has just exploded up prior to the open. Since it’s unclear which way this market is going to go, I will utilize the channel method in an attempt to catch a breakout in either direction. The upper line is set at 1411, lower line at 1399. Enter long when upper line is broken and short when the lower line is broken by 3 minutes.
This should keep the trade out of the noise and catch a nice move for a swing trade.
Dave Goodboy is Vice President of Marketing for a New York City based multi-strategy fund.