The market is telling us it may be. A close below 2287 in the E-Mini S&P 500 futures today would be the second consecutive close beneath a previous day’s low, generating a sell signal in the process. The talking heads on TV are blaming today’s big selloff on the abrupt and wide-ranging immigration ban enacted by the Trump administration over the weekend. While this may be the catalyst, stocks have been way overdue for a meaningful correction.
The chart below shows just how expensive the market has become. As we mentioned in RMB’s first blog of 2017, the market’s Shiller PE ratio is approaching the 30 level that preceded the Crash of 1929. While that doesn’t necessarily mean a top is nigh – market PE climbed as high as 43 just prior to George W’s presidency – PEs are definitely in nosebleed territory. The bull market will also turn 94 months old on Wednesday – making it the 2nd longest on record – trailing only the last Bill Clinton rally which lasted 113 months.
We’ve been waiting patiently for a signal to fade the current rally and get short and, for the first time since the election, we believe we may have one – especially if the E-mini S&P 500 futures manage to close below 2287 today. Consequently we believe the time has come to take a low-cost short position. RMB trading customers may want to consider establishing a fixed risk bearish position in the using E-mini S&P 500 futures put options.
Data Source: Reuters/Datastream
Right now we are looking at two strategies: the first is a bear put spread using the March options that currently costs around $350 and has the potential to be worth as much as $2,500 should the E-Mini futures close at or below 2150 at the expiration of the March options on March 17, 2017.
The second is also a bear put spread using the June E-Mini options. It currently costs around $1,100 and has the potential to be worth as much as $5,000 should the futures close at or below our second target of 2100 at the expiration of the June options on June 16, 2017. This trade costs more but gives us more time to be right.
We are selling into an uptrend, so we are going to give this trade a short leash. Consider exiting either strategy should the E-Mini futures manage to close twice above the 2299 highs in the front contract futures.
Contact your personal RMB Group broker if you are interested in either of these trades.
If You Are Not an RMB Group Trading Client…
Please be advised that you need a futures account to trade the recommendations in this report. The RMB Group has been helping their customers trade futures and options since 1984 and are very familiar with the strategies suggested in this report. Call us toll-free at 800-345-7026 or 312-373-4970 direct to learn more. We’ll send you everything you need to get started. You can also visit www.rmbgroup.com to open an account online.
If you are new to futures and options and want to learn more, download the RMB Short Course in Futures and Options. This free, easy-to-read guide covers all the basics. Call us toll-free at 800-345-7026 or 312-373-4970 direct for your free copy or go to our website at www.rmbgroup.com. Click the “Education Tools” tab at the top of the home page and scroll down to find the report.
The RMB Group
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This material has been prepared by a sales or trading employee or agent of R.J. O’Brien and is, or is in the nature of, a solicitation. This material is not a research report prepared by R.J. O’Brien’s Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.
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