The press is finally calling the bear market officially today. A bear market in equities is defined as a price decline of 20%. The S&P 500 index was down just slightly beyond that today. Like so many other key benchmarks this is likely to mess with trader psychology and could lead to a much longer decline as traders anticipate even greater moves to the downside. It is also worth noting that it was a year ago this month that the credit crisis began to take center stage with massive price shocks across the capital markets.
Translating this into the forex is relatively straight forward. The USD/JPY is likely to continue struggling at resistance in the near term as the JPY gains strength from covering shorts, which may be great for option sellers. I am looking at selling calls at 109 and 109.50 right now as the liklihood that the market will move beyond breakeven in the short term seems to fall every day. Additionally, the USD/CHF is bumping near long term resistance from the same channel it collapsed against in February. We may get some choppy trading in the near term but a couple more points to the downside in equities should push the USD/CHF below parity again, which may be a great short trade opportunity.
