April 6th, 2009

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Profit taking ahead of earnings

We have been noting April's tendency for a strong beginning and weak middle, and the seasonality seems to be holding true.  In fact, based on today's trade it looks as though the rally has been put on hold for now.  We were expecting a strong overnight showing in the major indices, and we were correct.  However, we were wrong as to the magnitude of the move.  While we were looking for 855 to 865 in the S&P, the market may have quietly topped out at 848. 

The selling commenced after a prominent analyst predicted more bank losses and questioned the governments bailout plan.  The same analyst, Michael Mayo, issued "sell" ratings on several financials and went on to say that the loan losses could exceed levels seen in the Great Depression.  Adding to turmoil in the sector, Treasury Secretary Timothy Geithner warned that the government could force out bank CEO's similar to the action the Fed took against GM(Government Motors)'s Rick Wagoner. 

The market is currently in the center of our support and resistance areas making a prediction of direction somewhat difficult.  Nonetheless, my instinct tells me that the markets may have turned the corner and we should expect the June S&P futures contract to make its way lower to the 780 area.  With that said, 832 looks to be extremely pivotal in determining whether the markets move higher or lower from here.  Once again, we are favoring the downside for now as earnings season may have a difficult time meeting the market's expectations.  If I am wrong, look for resistance at 836 then again near 855.

Similarly, 8,000 in the Dow may be considered the make or break point.  For now, it seems as though the odds favor a move lower to just under 7,500 but a close over 8,000 may prove us wrong.  In the case of the NASDAQ, we feel as though a slide to 1220 or maybe 1206 is in the works.  Likewise, the path of least resistance in the Russell seems lower and could bring the market to 411.

* 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 –

Flat

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-Russell chart is used because it is better for charting purposes, trade recommendations will denote whether a mini or full sized contract should be used.

There are no Russell Recommendations at this time  

NASDAQ Futures and Options Trading Recommendations

**There is unlimited risk in naked option selling and futures trading

Position Trade –

April 3 - Sell the mini-NASDAQ at 1337 or better.

*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.