March 4th, 2009

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Stock futures rally in oversold conditions

We have been looking for a relief rally and the market finally delivered.  After what looked like a last ditch attempt to run the sell stops on the open of electronic trading last night, the equity indices put together a relatively healthy rally.  Whether the consistent gains will extend beyond a handful of trading sessions is yet to be seen.  However, we see the potential for the S&P to see prices near 780 and the Dow near 7,400 by early next week.  NASDAQ futures could see 1180. 

The market's gains came despite the constant flow of negative news.  The ISM services number was reported to be near estimates  but was considerably in contraction territory.  On the other hand, ADP is calling for the private sector to have lost 697,000 jobs last month and the Fed's Beige Book suggests that there is little hope for a quick economic recovery. 

In yesterday's newsletter we noted support at 677 and suggested that the market would move a little lower before a rally could take place.  As it turns out, the blow of low was occurring as we were posting and emailing the newsletter.  We didn't expect the low to be made minutes after the reopen of night trading.  Nonetheless, it is here and we suggest that traders refrain from selling into the rally until we see much higher prices.  The large decline in equities has simply left the market "too short".  I have a feeling that shorts will be covering on dips and buy stops will be run on the way up.  Be careful if you are a bear, there will be better levels for this.  If you participated in our advice to sell puts or buy calls we recommend looking to take a profit on the puts and holding the calls in hopes of a continuation of the move. 

* 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 –

March 3rd - I like buying the April 800 calls for about $7 in premium.

March 2nd - Sell a March S&P 620 put for $7.25 or better ($362.50 in a mini and $1,812.50 for a full sized contract).  Place an order to buy this back at $3.  The risk is unlimited and the profit potential is limited to the premium collected.  Be careful with this one!

·         Our clients were buying these back this afternoon for $3.75 to take a small profit of $175 per contract in the mini and $875 if you are trading the big contract.  These figures are before commission and fees. 

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.