February 18th, 2009

Stocks waffle on Obama's $75 billion mortgage relief plan.   

The long awaited mortgage relief plan was essentially a non-event.  The $75 billion attempt to alleviate foreclosures and the pressure they are causing in the financial markets was unveiled in a speech delivered by President Obama in Arizona. 

New home construction fell to a record annual rate of 466,000 in January making news of the mortgage bailout plan bitter-sweet.  Although more expensive than previously expected,  the Obama administration claims that their proposal will keep 9 million people from losing their homes.  The plan includes the easing of refinancing for people that are upside down on their loan to rates that are subsidized by the government.  It also provides incentives to mortgage lenders in order to promote action to help those on the verge of foreclosure.  According to the President, it is worthwhile for the responsible citizens to support the plan to help their struggling neighbors as failure to do so will impact everyone.  Clearly, the markets aren't necessarily convinced and if the they are...they are bitter. 

While analysts are arguing that the big three auto companies would be better off filing for bankruptcy protection, motor city CEO's would "rather not go down that road".  At the same time, GM is claiming that they will be out of cash by March in the absence of another government injection of capital. 

It is hard to justify being a bull given the dreary market sentiment and dismal economic news.  However, it is times like this that offer the best opportunities.  The major indices are oversold and although it may be in their destiny to see lower prices we are due for a corrective rally.  Now is a great time to buy lottery tickets, I like February calls with strike prices near 800.  If you are an option seller, I like selling puts into weakness but caution that you would want to stick with the March options and strike prices at or below 660.

It seems as though most of the sell stops have been triggered and support near 785 through 778 (despite a today's temporary break-down) will hold for now.  In the meantime, we should see a rebound to 820 or as high as 830 as short traders cover positions.  The Dow came very close to reaching our major support level near 7,400 which supports a recoil rally that could extend to 7,900 should the buy stops lining the upside begin to trigger. 

* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data.  However, market analysis and commentary does.

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.