March 25th, 2009

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Stocks wildly...positive?

After an incredibly volatile trading session the major stock indices edged out moderate gains.  The daily range for the S&P was nearly 40 points with the index crossing the pivotal 800 mark on three separate occasions. 

Equity market gains were forged on news of better than expected durable goods orders as well as new home sales.  Despite what was the case earlier in the year, Geithner and company seemed to have a positive impact on trade leading the S&P near our first resistance area at 825.  However, questions over whether or not the current administration will be able to borrow enough money to fund the proposed budget triggered sharp selling after a 5-year note auction failed to lure buying interest. 

Based on conversations that I had throughout the day, along with market research, it seems as though the sharp break below 800 in the S&P was primarily sell stop running and the subsequent late day rally was the result of short covering.  This theory makes perfect sense.  It isn't hard to believe that anyone long the market would be trailing tight stops for fear that the bear market bounce could be near and end.  Similarly, those that are or were short the market likely saw the late day dip as an opportunity to cut losses. 

It feels as though the intermediate term highs are either in, or will be very soon.  Don't forget that March is known for ending the first quarter on a down note.  Also, those looking to sell into rallies in the previous couple of sessions were rewarded handsomely.  I expect that this will be an invitation for a continuation of such behavior.  If my assumptions are correct, aside from a possible uptick tomorrow or early Friday the overall direction could be lower. 

While overall we feel as though the current rally should see further digestion we don't want to get "too bearish".  As we saw today, the shorts may look at dips as a chance to get even with the market.  Therefore, we can't rule out a retest of the recent highs and possibly even a bit higher before the selling resumes. 

Look for resistance in the S&P near 825, 832 and 838.  The Dow is facing resistance at 7,890 and again near 8,050.  If you are a Russell trader, we see a ceiling near 442 with resistance coming in prior to that at 437.  1279 and 1290 are major resistance areas in the NASDAQ.

* 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. 

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.

Past performance is not indicative of future results.  The information and data in this report were obtained from sources considered reliable.  Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities.  Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.