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August 6th, 2008 Stocks Shine as the Lights are Turned off on Commodities Stocks struggled in early trade but turned a mildly negative day into a positive at the expense of commodities. Food based commodities such as corn and soybeans along with energy prices have experienced considerable corrections in recent weeks and has begun to give equity investors confidence in the U.S. economy going forward. Additionally, lower commodity prices will have a direct impact on taming inflation and could negate any tightening action by the Federal Reserve in an attempt at putting a thumb on price pressure. Early market action was dominated by industry wide write-downs of bad home loans following a report of larger-than-expected second quarter losses by mortgage financier Freddie Mac. The firm lost nearly three times what Wall Street had expected on a per share basis. Naturally, the health of Freddie Mac and Fannie Mae is a large concern in that they back nearly half of all domestic mortgage debt. I saw it as a positive that the market reaction to Freddie's earnings was somewhat orderly. The market's avoidance of panic trade likely sparked liquidation of the shorts (short covering) leading to the afternoon rally. Keep in mind that today's gains were on less than ideal volume and the market is approaching significant resistance levels. While it appears as though the short covering may continue in the near-term and there may be another day or two of higher prices it may be prudent to begin shopping for short call option opportunities. I have my eye on the September 1390 S&P calls for $4.00 ($1,000 on a full sized contract, $200 for a mini) or the September Dow 12,400 calls for 50 ($500 on a full sized or $250 for a mini). It will take a rally for either of these to get filled and I may be making adjustments to strike prices and premium as time goes on. Stay tuned...
Please note: A mini S&P chart is used because it is better for charting purposes, but trade recommendations are based the full sized S&P unless otherwise noted. 
S&P Futures and Options Recommendations...**There is unlimited risk in naked option selling and futures trading Position Trade – Flat Please note: A mini-sized Dow chart is used because it is better for charting purposes, but trade recommendations are based the full sized Dow unless otherwise noted. 
Dow Futures and Options Recommendations...**There is unlimited risk in naked option selling and futures trading Position Trade – Flat Please note: A mini-Nasdaq chart is used because it is better for charting purposes, trade recommendations will denote whether a mini or full sized contract should be used. 
NASDAQ Futures and Options Recommendation**There is unlimited risk in naked option selling and futures trading Position Trade – August 1 - If you took our advice, you would be long the September e-mini NASDAQ 1670 puts for about 20 points or $400. www.CarleyGarnerTrading.com There is substantial risk of loss in trading futures and options. Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction. |
