March 17th, 2009

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Will stocks turn over soon?

Stock index futures were essentially on hold going into the afternoon Federal Open Market Committee announcement.  As mentioned yesterday, this was one of the least anticipated FOMC meetings in recent years due to the lack of flexibility in the current Federal Funds rate.  However, traders know that the accompanying commentary has the potential to impact trade far more than the interest rate decision. 

The overnight and early morning pullback in the major indices was a necessary evil.  Without proper digestion of the rally, the odds of sustaining it are low.  Nevertheless, even with the healthy back and fill trade it seems as though the markets will struggle to make significant gains beyond our noted resistance areas and not far away from Wednesday's highs.  We are beginning to grow bearish, our clients were advised to buy puts and sell calls into the late afternoon rally (see below).  After all, much of the buying has been short covering and the volume has been less than desirable. 

Also, it is important to note that March is notorious for early and mid-month strength and late-month weakness.  The major indices have suffered significant end-of-quarter draw-downs.  However, today and tomorrow are statistically bullish days.  Therefore, even if we do get a moderate amount of buying into tomorrow my gut tells me that we will soon be in the midst of a correction.

Friday will be the triple witch and we could see increased levels of volatility but if you trust history the odds seem to favor the upside.  According to the Stock Trader's Almanac, the Dow has been up 5 of the last 7 March expirations and the market was up nearly 3% on that day in 2008. 

The indices seem to be overstretched here.  I see the resistance in the S&P near 806 but believe that even if we do see such levels it will be followed by a move lower to about 734.  The Dow nearly reached our 7,572 resistance and we are beginning to reverse our opinion.  It seems as though we should get a pull-back to 7,000 at a minimum.  The NASDAQ also reached our upside target, we are leaning lower looking for 1132.

* 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 18 - Our clients were recommended to sell the April S&P 870 calls for $7.

March 18 - Our clients were recommended to buy the April 690 puts for $7.

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.