How to Trade Hurricane Sandy
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Today is destined to become one of the stormiest days to hit Wall Street within the past decade; stormy, not just in trading, but literally stormy weather. The hurricane, called Sandy, with its 75 MPH winds, is already inundating the east coast of the U.S. and is threatening widespread power loss, floods and damage that could affect up to 60 million people, the FT reports. In fact, it is so severe that for the first time since 1985 Wall Street will be closed for trading due to weather concerns. That’s right; the biggest stock market is the world is closed due to inclement weather.
Nevertheless, this unexpected Wall Street shutdown will come during the most critical week of the month – a week before the U.S. presidential election and just days before the final unemployment figure for Obama’s first term (which could possibly be his last, as well). It is possible that while Wall Street could still be locked down and untradeable, unemployment figures in the U.S. will stream in the newswires and will rock markets outside the U.S. In fact, investors point to the possibility of a trend and expectations on Wall Street are mounting and a burst of either selling or buying is likely to occur once trading is resumed with the gap closed within several minutes. It all depends on how long Wall Street will be closed for, and whether the data will surprise for the better or for the worst.
So what kind of data does Wall Street have to digest? At the moment it is U.S. CPI data, which was relatively in check and lower than 2%, leaving space for the Fed to accommodate the economy, and of course the news of the European Troika which once again calls for a further haircut for Greek debt.
However, if Wall Street is to be closed tomorrow as well, then traders will have to price in the results of customer confidence and the S&P/Cash Shiller housing prices index, too. Looking out at a possible closure for Wednesday then traders will miss the critical ADP employment figure, which is considered the best forecaster of NFP results.
And so, what we can conclude is that the longer Wall Street will be closed the bigger the gap will be in the opening. But the question is what kind of gap? Will Wall Street open significantly higher or significantly lower?
Traders Bullish Around Sandy
Let’s get practical; we know that we are likely to see a big gap and we know what kind of data we will get beforehand (though we don’t know what that data itself will yield). So, what kind of gap will we get? The eToro community provides clear insights. In fact, traders in eToro have flipped to bullish territory just ahead of Sandy’s arrival on the back of better than expected U.S. GDP growth and, therefore, are pricing in better-than-expected unemployment and better-than-expected housing and are getting ready for a big bullish run on Wall Street.
How big? eTorians weighted target for the S&P500 is at 1443; considering we are currently at 1411 this is pricing a 2.31% gap, while long term traders are even more bullish with an average target of 1470, a 4.18% upside very close to the 1500 threshold. In the Technology space, with the Nasdaq100 trading at 2665, or more accurately closed at the 2665 level, traders on average see a slightly more moderate upside gap of 2.19% while long term traders are expecting an aggressive run with long term targets at 2871, a 7.75% upside. This indicates that rising appetite for technology is coming on the back of an unprecedented recovery in Facebook’s stock which saw a sharp rise of 19% in a single session, the launch of Microsoft’s Windows 8 and the expected announcement of Google’s newest iPhone. So prepare yourself for a green ending of October with Wall Street coming out of the storm in the money.
Copyright 2012 eToro Blog
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