December 16th, 2008

Happy Holidays from DeCarley Trading!

The Fed sets a target on the target rate.

Stock index futures traded within a tight intra-day range ahead of the FOMC announcement.  As we previously noted, the light volume seemed to favor an eventful reaction as well as an upside bias.  Today's post announcement trade left the shorts with little choice but to cover positions and step aside...for now. 

You have likely heard that the Fed cut its Fed Funds target rate to the lowest level on record...essentially zero.  Not only did they surpass expectations for a 50 basis point cut, but they exceeded the most aggressive forecasts of a 75  basis point cut.  Coming into the day the target rate was set at 1%, it is now set at a target of 0% to .25%.  This is highly unusual and extremely forceful but the market seemed to have liked it.  However, one has to wonder whether or not the cheering will last beyond the "joyful" holiday season.  After all, such action must mean that the economy is in critical condition.  Additionally, this rally didn't have the momentum that some of the others have had following a surprise move by the Fed. 

Along with the magnitude of the cut, they reiterated the eagerness of the situation by indicating that the low rates are here to stay.  "The committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time."

We have been touting a rally in the S&P above 930 and it may finally become a reality in tomorrow's session.  Given today's action, we have extended our expectations to 940.  However, major resistance levels to warrant some caution for the bulls.  Nonetheless, statistics show that equities will enjoy higher prices in the sessions to come. 

The Dow is nearing our projection target of 9,065 and may be vulnerable to some back and filling trade.  However, our new outlook is 9,140.  Likewise, the NASDAQ's high of 1248.75 wasn't too far way from our target of 1253 and also may be the victim of buyer's remorse in the coming days but new highs may pave the way for a more meaningful rally.  Let's see what happens.   

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. 

 

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 -

*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.