December 19th, 2008

Happy Holidays from DeCarley Trading!

Stuck in a rut, but a volatility spike may be in the cards for next week.

The Friday before the holiday trading week turned out to be lackluster in every way; economic data was sparse, trading volume was light, and the price ranges were relatively tight...with the exception of the late day selling.  The early morning auto-bailout announcement kept the markets whole, but wasn't enough to spark buying interest.  Much of the recent up-move in equities seems to have been the result of short covering.  Accordingly, while the bias seems to be slightly higher there as the liquidity comes back to the markets in January the selling pressure may come with it. 

The story of the day was the Bush administration's pledge to offer $17.4 billion in loans to carmakers.  The loans stipulate that the big three must conform to specific government standards in terms of business models and employee dealings.  The initial reaction to the news was positive, but position squaring and a lack of buying interest lead to heavy trade in the major indices. 

Some are optimistic about the outcome of the automaker resolution in that it is a loan and not a handout.  Tim Ghriskey, Chief Investment Officer of Solaris Asset management in Bedford Hills, New York commented, "It's a relief for the markets".  He added, "There was a feeling it was on its way, it is being dealt with and not in a way that opens up the pocketbook and says 'take what you need'. "

On a side note, I heard rumors today regarding an oil company bailout.  At this point they appear to mere speculation, but if you think about it the concept isn't that unbelievable...the financial windfall that oil companies enjoyed during the "hay day" of crude created inefficient extraction practices as budgets were all but thrown out the window.  Now that cost consciousness is necessary to produce profits, the shift in corporate mentality may be too slow to keep up with the crunch. 

Going into next week, we don't have a strong opinion either way for the major indices but are leaning lower in the near-term.  871 seems to be a likely target for the S&P during Monday's session.  The direction from there could decide the fate of the market.  If the S&P holds 871 we should see a bounce higher with 931 as the target.  Failure at the noted level could easily translate into a slide to 811.  A similar benchmark in the March Dow is 8,480. 

I will be "working from the road" next week, and am available at my usual contact information.  Keep in mind that Wednesday is a half trading day, the markets will be closed on Thursday in observance of Christmas and will be open for a full trading session on Friday.  However, the volume will be extremely light and should probably be avoided if at all possible.  This newsletter will be updated on a limited basis.  However, you are free to contact me with questions. 

Have a great weekend!

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.