Just as I was writing this commentary for the
October SPX and SPY trade, the news came across my wire that European
Central Bank governing council member Axel Weber said the bank may need
to raise interest rates to a level that restricts economic growth to
keep inflation under control. As the news was coming across, I was
writing about how the SPX was breaking out to the upside above its
previous swing highs at the 1556 levels. This technical move known as a
breakout, signaled that the SPX (and SPY) were, in effect, heading
higher. When planning our spread for this month, we took into account
the markets neutral to bullish sentiment and expected the SPX index
price to move sideways to up around the 1570 to possibly the 1580 level
by expiration, if bullish attitudes remained intact. We also took into
account the fact that earning season was going to kick off about a week
outside of expiration and if the Dow components put in solid Q3
numbers, we would be in for a move to the upside. Also weighing on the
markets is the fleeting fact that another rate cut on Oct. 31 is going
to happen. Overall, our October trade remains intact with the SPX at
1554.41, right near the middle of our range, which is excellent.
Today's market sell off could be seen as a gross market overreaction,
but only the markets will tell the story.