February 26th, 2009

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Weak housing, weak jobs...weak stocks

An impressive overnight rally quickly fizzled....as they all do.  Nonetheless, the day wasn't a disaster.  It certainly could have been given the poor economic news and the event risk over President Obama's budget release. 

According to the U.S. Census Bureau, new home sales were down 10.2% from December 's pace and less about half of what it was a year ago.  Weekly jobless claims were equally as depressing.  The U.S. Labor Department reported that claims were up 36,000 to 667,000; this was the highest level in 16 years. 

Also working against the indices; the FDIC announced that there were 252 banks that they have categorized as troubled; this is well above the 171 in the third quarter. 

The White House released its 2010 budget on Thursday, given some of the inclusions it seems as though a moderate down day in equities should be considered a victory.  In fact, it seems as though the markets are vulnerable to a considerable slide in tomorrow's session as investors and traders get a chance to look over the details regarding business and investment tax increases.  Additionally, President Barack Obama anticipates another $750 billion bank bailout this year. 

Coming into today I was relatively confident that we would see the S&P rally to 800.  My assumption was based on the idea that technical short covering would have the ability to fuel a sizable rally.  However, following the mid-day sell off I began second guessing my original analysis.  In fact, I now believe that the odds favor more weakness before the market can turn around.  I am looking for about 735 on the downside in the S&P and 7,000 in the Dow.  The NASDAQ could see 1,095.   

Our clients were recommended to take a profit on the March S&P 660 puts this morning on the rally near an option premium of $4.20 for a profit of $190 per mini contract ($950 if you are trading the full sized S&P).

* 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 –

February 18 - Short March S&P 660 puts at $8, looking for a quick rally to cover. 

·         Buy this back at $3 or better to lock in a profit of $250 minus commissions on a mini and $1,250 minus commission on a full sized contract.

·         February 26 - Our clients were recommended to take a profit on the March 660 puts this morning on the rally near an option premium of $4.20 for a profit of $190 per mini contract ($950 if you are trading the full sized S&P).

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.