April 21st, 2009

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Bounce...Dead Cat?

Stock index futures suffered significant losses in overnight trade but managed to post gains by mid-day.  Yesterday's losses were mostly at the hand of the banking sector; conversely, today's gains may not have been possible if it weren't for a relief rally in some of the major banking stocks. 

Investors seemed to like Treasury Secretary Timothy Geithner's agreement to allow some banks to repay bailout funds.  The decision on repayment would be left to bank regulators.  According to Geithner, the "vast majority" of banks have plenty, if not more than enough, cash to operate.

On a day in which bank stocks were looked at slightly more favorably, there was a significant amount of anger noted at Citigroup's annual shareholding meeting.  Despite shareholder disgust, CEO Vikram Pandit claims that "Citi is one of the great business opportunities of our age."  He added, "I believe to my core that Citigroup has what it takes to rebound , what it takes to rebuild."  Citi appointed four new board members that are expected by Pandit to bring "new eyes" to the firm.  In the meantime, Pandit continues to hold on to his job by his fingernails.

Yesterday we noted the possibility of a dead cat bounce, and that seems to be what we are seeing.  We also noted resistance at 851 in the S&P and for now expect that to hold.  However, I wouldn't want to be in the way of this market if it wants to continue...bears should be cautious and avoid being overly aggressive.  Keep in mind that the Russell continues to outperform other indices and it is said to be a market leader.

We see near term resistance in the S&P near 851, and have support at 833 and again near 823 again.  Should the market fail to see follow through buying tomorrow, we could be in store for a move to 875.  We are leaning lower but rather than picking an absolute direction, we prefer to wait and see what tomorrow brings.

If you are trading the Dow, we see near-term support at 7,825 and again at 7,735 with resistance at 482.  Support in the Russell comes in at 457 and 449. 

* 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 –

·         April 15 - We recommended that our clients with multiple positions lighten up by taking small profits with the intent of reselling them for better prices.

·         April 20 - Clients were recommended to take profits near $2.75, most fills were near $2.85. 

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 –

April 3 - If you followed our recommendation, you would be short a mini NASDAQ from 1337.

·         On April 9 we recommended to buy an April 1350 call against this position for about $375.

·         April 14 - You may have opted to take a profit on this position on today's dip, if not look to buy it back near 1275.

·         April 15 - Our clients were advised this afternoon to exit the NASDAQ recommendation below at or near 1296.  Assuming a fill at 1337 and 1296 the profit on the trade would have been $820 minus commissions and fees.  If you bought the 850 call for insurance, this works against your profit but hang on to it...it may pay off.

·         April 16 - I hope that you were able to liquidate the remaining long call position today.  If not, look to do so early tomorrow.

*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.