The following is an excerpt from Chris Vermeulen and J.W. Jones | Published November 7, 2011 | resourceinvestor.com
With all eyes on the unemployment report and Europe, the CME Group’s PR Department nearly created an all out panic with their announcement after the market close on Friday relating to futures maintenance margin. The original statement was vague and I was quite concerned until I checked out the CME Group’s web-page and the PR Department sent an update clarifying their position. At this point I think the crisis has been averted, but this is just another reminder that we live in “interesting times.”
Keep in mind that if the CME starts raising margin rates across the board for futures contracts in order to protect themselves stocks and commodities could collapse. Silver recently had its margin rates increased and silver since then dropped 25% in value. So imagine if they raised the rates for more commodities…
The current price action in the marketplace pales in comparison to the world’s geopolitical tensions and deteriorating social mood. In my trading career, I have never seen the price action in the indices react so violently to intraday headlines and rumors. Risk is high and the types of traders profiting from this market are day traders and very short term traders with trades lasting just a couple hours to 24 hours in length. Aggressive trading with small position sizes is all that can be done right now. This is not meant to be investment advice, but more as a function of the market environment in which we find ourselves currently trading within.
Right now it is hard to say where price action in the broader indices heads in the short-run. One headline out of Greece or Italy could dramatically alter economic history. In the intermediate term I remain neutral to bearish for a number of reasons. One indicator I follow is the bullish percent index on the S&P 500 which at this point is arguing for lower prices.
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