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August 22, 2012  Wed 7:13 AM CT

SPX: SEE CHART GET CHAIN FIND STRATEGIES
Stocks are heading lower this morning after failing to hold long-term highs yesterday.

Futures on the S&P 500 and Nasdaq 100 declined by about one-quarter of a percent, while the Dow Jones Industrial Average is facing smaller losses. On Tuesday, the SPX reversed after touching its highest level since mid-2008, while the NDX returned to prices last seen more than a decade ago.

Asian and European bourses are also lower after a widening Japanese trade deficit revived fears about the global economy. Hong Kong's Hang Seng Index and London's FTSE 100 led with declines of more than 1 percent. Attention also remains focused on the Greek and Spanish debt crises, although major news is considered unlikely before the Sept. 6 European Central Bank meeting.

Today's downside in equities also comes after the yield on the benchmark 10-year U.S. Treasury yield hit resistance at its 200-day moving average. Given that stocks and bonds tend to move in opposite directions, some traders may consider that price action as a reason to reduce risk.

Commodities and foreign exchange painted a modestly bearish picture as well, with the euro down slightly against the U.S. dollar. The Australian and Canadian dollars, which tend to be correlated with stocks, also fell. Weakness in the Japanese yen following that trade report, however, seems to be preventing a wider flight to risk aversion.

Oil and copper edged lower by about one-third of a percent. Most agricultural foodstuffs declined by less than 1 percent. Gold and silver also posted small losses.

In company-specific news, PC maker Dell is falling by almost 6 percent after second-quarter revenue missed estimates and management lowered guidance. Kitchen retailer Williams Sonoma and homebuilder Toll Brothers are gaining on strong results.
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As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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