April 27th, 2009

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Swine flu or cop out?

Global equities sold off sharply overnight what many were referring to as swine flu panic.  However, we believe that the swift rally that occurred late last week simply needed an excuse to take a breather.  Either way, the S&P futures suffered losses well into the double digits before trade commenced on Wall Street. 

Despite what could have been a disastrous day for the markets, buyers continue to step in on the dips allowing for a temporary paring of losses in all of the major indices.  The unusually large intra-day ranges and the velocity in which the market is testing the boundaries of support and resistance suggests that we are setting up for a large move. 

At this point we are undecided on the direction of the markets and prefer to wait for better trading opportunities.  With that said, we prefer the short side of the market for those that insist on being involved.  However, entry is even more important than usual given the market conditions and bears should wait for large bounces before getting in.  Chasing this market lower has not been a promising strategy.

Based on my conversations and observations, the recent indecisive trade in the indices has wreaked havoc on both the bulls and the bears.  Don't forget that being on the sidelines is in itself a position; potentially missing a market move is sometimes a necessary evil for capital preservation and shouldn't be a cause of frustration (easier said than done, I know).

Resistance in the S&P can be found near 868/872 area with the next potential ceiling looming at 881.  Should the index see 881, we would turn highly bearish and look to construct an appropriate strategy.  In the meantime, significant lies at 837, 830 and then again at 793. 

Dow traders should look for resistance near 8,200 and support at 7,885 and 7,600.  We have a hard time believing that the NASDAQ will be able to penetrate 1400 and see support near 1314 and again at 1232.

* 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-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.