January 15th, 2009

Equities mixed, and so are traders.

After a swiftly lower open, the S&P rallied nearly 20 points in 20 minutes in mid-session position squaring ahead of Friday's option expiration.  It seems possible that tomorrow may bring similar short covering, if so the market may grow legs and advance into the middle of next week.  We see potential f or the March S&P futures to reach 884 with the Dow looking higher toward 8,500 on the short covering bounce. 

Bailout hopes may have been the catalyst that temporarily moved the bears to the sidelines mid-day.  Word of Bank of America needing another government infusion was somewhat mitigated by the Senate vote scheduled to take place after the bell.  Traders with short positions in the market, understandably so, didn't want to be the victim of a wildly out of control short covering rally as is always possible in these types of events.  Conversely, it may have been terrorism fears surrounding a plane going down in the Hudson River that put an end to the short covering spree.  Unfortunately for the bulls, once it was clear that terrorism wasn't involved the indices had a difficult time recovering. 

Today's trade from low to high, looks like nothing more than an oversold bounce.  Whether it eventually becomes more than that will depend on the upcoming senate vote and earnings season.  However, given the magnitude of the slide there seems to be a lot of risk in the short side of the market.  We may have entered a scenario in which the market is simply "too short".  If all the bears are in, there may be nobody left to sell.

If you took our advice in selling the February e-mini 630 puts for $8, we recommend being quick to take a profit.  It may be possible to buy it back for $2 or $3 tomorrow.

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 –

January 15 - If you took our advice in yesterday's report to sell the February e-mini 630 puts for $8, we recommend being quick to take a profit.  It may be possible to buy it back for $2 or $3 tomorrow.

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.

Past performance is not indicative of future results.  The information and data in this report were obtained from sources considered reliable.  Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities.  Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.