March 23rd, 2009

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Bad bank, good market

Wall Street cheered the government's plan to soak up bad bank assets as the broad market soared 6% on the day.  The two-week rally is now running on three-weeks making this the longest running bull market bounce in quite some time.  The jury is still out as to whether it will last, and I suspect we will know the answer to the question in the coming days. 

The Treasury Department's plan to alleviate banks from bad assets is set to tap into money from the original $700 financial rescue fund.  The plan will focus on luring private investment via low interest rates to purchase the toxic securities in which the U.S. government will share in some of the risk.  A major positive in the plan seems to be its tendency to involve the private sector and although the government will be insuring speculators willing to purchase the assets, at least they are involved. 

We were expecting a possible retest of the highs but I don't think that many could have anticipated such as large rally in a single session.  In my opinion, today's rally was primarily forged on short covering thanks to the election of buy stops that have been accumulating for quite some time. 

Now that we are here, it seems as though the market is getting toppy once again.  However, I do see reasonable potential for the S&P to reach 830 before the short covering/buy stop fury dies down.  There is massive criticism aimed at short speculators, but if it weren't for the shorts we likely wouldn't see these types of bear market bounces. 

Keep in mind that March seasonal point to a weak close to the month.  As good as the markets look now, we could see the opposite phenomenon as April Approaches. 

We were recommending that our clients sell the April S&P 890 calls for $6.50 and the order was filled near the close.  Some of our clients sold the 885's for $6.00 due to (my) impatience but I still feel as though this is a good trade.  We may be looking to buy the April 710 puts for about $6 tomorrow.

I see resistance in the S&P near 825 and again near 832.  I suspect that we are near the highs, if I am right we could trade down to support near 790 for starters.  I see near term resistance in the Dow at 7,756 and again near 8,040.  However, our feeling is that even if the markets are going higher overall (which we doubt) we should at minimum see a minor pullback.  Look for 7.450 on the downside. 

1260 appears to be heavy resistance for the NASDAQ, our next level will be 1285.  Should the market turn-over as we are looking for, we could see a move lower to 1220 in the near-term.

If you like our support and resistance calls, (and aren't already doing so) come trade with us!  Our clients are free to "pick our brains" and use our projections for their intra-day trades.  This information can be great for traders of all types and strategies. 

* 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 23 - Our clients were recommended to sell the April 890 calls for $6.50 or the 885 calls for $6.  At the time of this report, it was possible to get slightly better prices.  We would like to buy these back within a few days if possible, stay tuned. 

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

·         March 20 - We recommended that our clients buy these back at $2.  However, some took a profit on Friday and bought them back at $3.20 in premium.  We think that we may be able to get in at better prices next week.

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

·         March 20- Our clients were recommended to sell these at $15.  However, some took a profit near $12.75.  We think that we may be able to get in at better prices next week. 

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.