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Originaly presented by Richard Cox.

Stocks closed lower at the end of last week as profit taking and position squaring have taken valuations off of their long term highs in marked reversals. Most of the market pessimism has centered on the fact that the US Federal Reserve will announce reductions in its monthly stimulus program, where $40 billion in Treasuries and $45 billion in mortgage backed securities are purchased as a means for injecting extra cash into the country’s monetary base. Official comments in these areas have been mixed but what cannot be denied is that there is a growing voice within the Fed that suggests monetary stimulus is no longer necessary to support the economy.

The next FOMC policy meeting will be held on June 18-19. Currently, analysts and investors are left with vague comments with regard to what will be the Fed’s next intentions. This essentially means that whatever the outcome, some portion of the market will be surpised and wrongly positioned. So, this also means we will see a large pickup in market volatility once the Fed finishes its meeting and releases its closing statements.


1. The next week’s FOMC meeting puts too much uncertainty into the markets for weekly forex trades, so this week I will base trades ideas on stocks using longer term fundamentals. First choice can be seen in Biogen Idec (BIIB), which has consistently beat market estimates for both earnings and revenue. This is a contrarian play, as the stock saw a major sell-off last week. But with prices finding support at the 38.2% Fib retracement of this year’s rally, we are inline for a resumption of the uptrend as long as the 200 level holds. Look to buy monthly CALLS in BIIB at 210, targeting a long term retest of its all-time highs.

2. On the short side, I will be looking to bet against AT&T (T). The stock has recently met resistance at its 52-week high despite posting quarterly earnings that were lower than analyst expectations. Recent downgrades from S&P show that the stock has limited upside, and this looks even more true when we look at the stock from a price perspective. Overhead resistance can now be found at 39 while we have no significant support until the mid-20s region. And all this points to excellent risk to reward when looking at sell positions. Look to buy one month PUT options in AT&T at 36.10.