February 5th, 2009

Non-farm and stimulus package cause stock shorts to cover

The equity indices enjoyed consistently positive trade for most of Thursday on what looked to be position squaring ahead of tomorrow's employment numbers, optimism over the stimulus package and better than expected retail sales.  However, the day didn't get off to a good start and it didn't end particularly well either.  The Dow traded below 7,800 before the buying ensued to push the index to 8,069 then retreated into the close. 

Many retailers, including discount giant Wal-Mart and Macy's Inc., beat the street's sales estimates.  The news took investors minds off an announcement by Macy's earlier this week in which the firm plans to cut 7,000 jobs.  Keep in mind, however, that even though the numbers were a pleasant surprise relative to expectations they were still incredibly weak. 

All eyes are on tomorrow's data with most analysts looking for 500,000 jobs lost last month.  Many claim that the financial markets have assumed a number close to 600,000.  If this is the case, it may be difficult to expect heavy selling on the announcement as speculators have already sold the market short in anticipation of a downside miss. 

I am not going to attempt to predict the outcome.  The indices at or near major resistance levels and under the right circumstances could break out to the upside as shorts are forced to cover positions.  On the other hand, in the absence of the non-farm payrolls data I would be a bear looking for areas noted in previous reports...790 in the S&P, 7700 in the Dow and 1135 in the NASDAQ.  We prefer the sidelines until things clear up (hopefully after tomorrow's data). 

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.