March 12th, 2009

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Stocks rally on possible newbank rules

The Dow posted its biggest three day gain since November but the jury is still out as to whether this is a rally with legs or simply a bear market bounce.   The rally was sparked by better than expected retail sales and news that the accounting board may recommend an easing in financial reporting rules of illiquid assets. 

GE's credit rating was cut, but it was cut less than what the market had already anticipated.  Additionally, GE announced that it will no longer need the $2 billion bailout loan from the government that was previously requested. 

In yesterday's newsletter we stated:

We may have avoided the infamous one-day rally, but I can't rule out a fizzle after two or three days.  However, in the meantime the S&P should be able to rally to the 750 mark in the near term.  We did see a high of just under 733 in today's session but it "feels" like there is more to go.  We have revised our Dow target to 7,150.  The NASDAQ on the other hand has outperformed and therefore reached our  near-term upside target.  We could see just above 1140 but it may struggle from there. 

Today we are doubting the ability of the rally to hold above major resistance levels ahead of the weekend.  We are looking for some back and filling from here.  Support in the June S&P should be found near 736 and again near 728.  June Dow traders should look for a pullback to 7,035 at minimum or perhaps 6,974.  In the NASDAQ, we are looking for a pullback to 1132 in the June contract.  However, short covering rallies can be hard to stop and being in front of the bus is miserable.  All bearish trades should be taken with caution. 

* 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 10 - Place an order to sell these for $15 or better.  You should be out of this by now, if not get out!!

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 –

*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.