January 6th, 2009

FOMC minutes kept traders on edge.

The bias was higher for much of the day as investors seem to be eerily complacent and the shorts have grown increasingly uncomfortable.  In my opinion, much of the buying witnessed in recent weeks has been at the hand of bearish traders liquidating positions; fortunately for the bulls there may be a little more where that came from. 

It has been noted that the are a flurry of buy stops above the market which could bring the S&P to the 950/960 area.  In an extreme case of momentum, I see potential for just under 1,000.  With that said, without an immediate catalyst the massive short squeeze may not materialize as the major indices are up against significant technical resistance. 

Based on recent economic reports, it doesn't appear that the catalyst will come in the form of data and the window of opportunity seems to be closing.  According to the National Association of Realtors, pending home sales fell to the lowest level on record in the month of November.  Additionally, the Commerce Department claims that factory orders declined by 4.6% in November.  On a lighter note, the ISM's Services index contracted at a slower than expected pace last month. 

Friday's non-farm payrolls data could be a critical factor in the near term direction of the markets.  We continue to point out seasonal weakness as mid-month approaches.  Should short covering managed to break technical barriers on the upside, it is likely that the party won't last.  Look to be a bear on what we believe may be a bull trap break out. 

The first level of support in the S&P will be found at 880, with the next being around 850.  8,670 marks the first level of support in the Dow. 

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.

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