December 15th, 2008

Happy Holidays from DeCarley Trading!

Madoff stole money from his investors, and stole a possible rally from the market.

At the close of trade on Friday, it looked as if Monday was set to be a positive day on Wall Street.  However, the dust cloud surrounding the Madoff ponzi scheme looks to have drained some of the already suffering market optimism. Traders know that without confidence in the system, the financial markets are nothing more than a house of cards.  Accordingly, buyers were reluctant to enter the market. 

As individuals and firms reveal their exposure to Madoff's fund, the extent of damage is unsettling.  Investors in the fund ranged from ordinary households, to large corporations, to the uber-rich.  Alan Gayle, senior investment strategist for RidgeWorth Capital Management, commented on the situation, "The investor psyche is already quite fragile.  Scandals like this just add fuel to the fire."

Also wearing on confidence, the auto-maker bailout saga.  The market seemed somewhat relieved to hear President George W. Bush claim "we're now in the process of working with the stakeholders on a way forward."  Some analysts predict that a big three bankruptcy could result in as many as 3 million U.S. job losses next year. 

Keep in mind that light trading volumes tend to magnify moves, that may be part of this morning's dramatic fall.  However, it will also increase the volatility related to tomorrow's FOMC announcement.  The market is expecting a half of a point cut in the overnight target rate, but will be eagerly awaiting any commentary as to how long the low rates may last and what the next move will be. 

As long as the S&P continues to close above the support noted in last week's newsletters at 856 the bias seems to be higher.  Likewise, support in the Dow can be found at 8,420 and at 1160 in the NASDAQ.  However, a close below critical support at stated levels could be the pre-cursor to a much larger drop. Our upside targets remain intact at 931 in the March S&P, 9,065 in the Dow and 1253 in the NASDAQ. 

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 500 Futures and Options Trading Recommendations

**There is unlimited risk in naked option selling and futures trading

Position Trade –

November 12 - Our clients were advised to buy the December e- mini S&P 500 1030 calls for $6 in premium or $300. 

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 Jones Futures and Options Trading Recommendations

**There is unlimited risk in naked option selling and futures trading

Position Trade –

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 Trading Recommendations

**There is unlimited risk in naked option selling and futures trading

Swing Trade -

Flat

*Due to the volatile nature of the futures markets some information and charts in this report may not be timely.

There is substantial risk of loss in trading futures and options.