April 22nd, 2009

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Stock futures melt in last hour

It was a roller coaster ride on Wall Street and the futures markets went for the ride.  Equity indices started the day on the wrong foot with a reported first quarter loss of $177 million by Morgan Stanley.  Also, the IMF (International Monetary Fund) believes that the U.S. real GDP will be a draw of 2.8% in 2009 and flat line in the following year. 

In mixed news, the Federal Housing Finance Agency reported an increase in home prices of .7% in February.  However, the gains are paltry relative to the fact that they were down 6.5% from a year ago (being a Vegas resident, a loss of under 10% seems attractive). 

Nonetheless, after trading lower in the overnight session, stock index futures enjoyed what looked to be a stabilizing rally for much of the day.  That is, until the close.  What began as technical selling quickly turned into a full-fledged plunge and could have been the beginning of a much larger slide. 

We have noted resistance in the S&P near 851 and that it was critical for the market to hold above it in order to avoid a market controlled by the bears.  Today's late day selling into the close leaves me looking cautiously lower in the indices.  The S&P will need to break below 830 support, but I can't help but feel that we will see sub-800 at some point in the near future.  That said, day traders may look to sell into rallies.  We prefer to wait  for a break down to capitalize on overvalued puts.  I will keep you posted. 

I certainly wouldn't "bet the farm" as the markets are extremely choppy, but the Dow seems destined for 7,600.  The NASDAQ maybe in store for 1300 again.

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.

* 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 9 - We recommended to sell the April 940 calls for $8, but were getting filled between $7 and $7.75.

·         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.