March 27th, 2009

Thanks to all of you who purchased my book, "Commodity Options", I appreciate your patronage!  Don't forget to write a review on Amazon.

Moving to the sidelines

There seemed to be very little incentive to be involved in the market on Friday.  We had been expecting a significant reversal in stocks, but that just hasn't become a reality.  Instead, the selling thus far has been very contained.  Much of the problem could lie in the fact that few are believers in the current rally.  Despite all that we have been through in the previous couple of months, speculators are still bears and according to COT data there are still some shorts left to cover (if made to). 

Bank stocks led the market lower after what has been one of the largest bear market rallies in history.  Word from several bank executives indicating that business in March lagged that of the previous two in 2009 seemed like a good reason for the bulls to book profits and the bears to cautiously get back in.  However, overall the selling pressure was mitigated.  The market had multiple opportunities to break down given the technical and fundamental environment combined with light volume...but it didn't.

I have a sneaking suspicion that, despite historical tendency, we could see additional end of month buying as funds are tying up the odds and ends before quarter end.  Accordingly, we recommended that any of our clients with the short S&P calls as recommended below flatten (or at least lighten up) going into the weekend.  Perhaps we are being a bit too cautious but our charts are telling us that 850 is possible by next week and we can't justify the risk of holding short calls given our expectations to be able to resell them at better levels. 

I still believe that this is a bear market bounce as opposed to a new bull market.  Nonetheless, the major indices are behaving well and I cannot deny that they are feeling higher.  Accordingly, we have adjusted our potential resistance areas a bit.  The S&P will continue to face resistance near 830, but it seems like we could see closer to 840 and maybe even 850 before this move runs its course.  Dow traders should still look for a move just above 8,050 and the NASDAQ could see 1302.  The Russell, which has been leading the market higher...and likely lower soon, should struggle to get above 450. 

* 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.