January 5th, 2009

Cautious Monday trade.

Equities suffered from some back and filling trade following last week's impressive New Year rally but buying stepped in.  Aside from construction spending data that was reported to be slightly better than expected, the news story of the day was the December sales numbers for Ford, GM and Toyota. 

Ford Motor Company reported a drop in sales to the tune of 32%.  Even worse, Toyota sales plunged about 37%.  Massive discounting and incentive packages have yet to entice consumers to open their wallets for large item purchases.  Although, some sources note that the problem isn't necessarily with a lack of demand for automobiles but rather a lack of available financing.  The truth is probably somewhere in between. 

Also in the news, speculation over Obama's economic stimulus plan and a possible $300 billion tax cut plan seems to be keeping equities afloat.  However, we worry that the markets are unreasonably optimistic in regards to the Obama administrations ability to quickly revive the economy.  We all know that significant economic improvements take time.  Unfortunately, there isn't an "easy button" to solve the housing and credit issues still plaguing the economy.  While the bias is higher now, we wonder whether it will be able to maintain the upward momentum as we approach mid-January, or maybe even the inauguration.  Buy the rumor sell the fact?

There is a small string of economic reports tomorrow, but the bulk of it being much later in the week (Friday).  As previously mentioned, there are a significant number of buy stop orders above the market and shorts could be getting frustrated at the lack of bearish trade.  Accordingly, there is risk of a sharp temporary rally; however, it seems as though failure for the market to find a catalyst for higher prices tomorrow will likely lead to lower stock indices.  In the absence of a trigger to the short covering rally, we are looking for 888 in the March S&P while the first area of resistance remains in the high 930's.  The path of least resistance in the Dow seems to be toward 8,652.  The NASDAQ, on the other hand, could see prices near 1209 in the coming sessions. 

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 –

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 Jones Futures and Options Trading 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 Trading Recommendations

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

Position 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.