April 29th, 2009

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GDP, Fed and Buy stops make way for stock rally

An early morning GDP report, and the Fed, indicated that the economy may have stabilized.  Investors welcomed the news and bid the major stock indices higher while those short the market felt the squeeze. 

Ironically, early morning strength in equities came at the hands of a weaker than expected headline GDP number.  Traders dissected the data and looked at it with a "glass half full" mentality.  The most notable component of the GDP was a rebound in consumer spending, which is said to be a leading economic indicator.

According to the Fed, the pace at which the economy is contracting "appears to be somewhat slower" relative to the mid-March meeting.  At the time of the announcement, stock index futures were already sharply higher but it didn't take long for the rally to extend itself. 

We noted our interest in selling call options against an S&P rally to the 880 area, and today our dream came true...almost.  Even with market volatility ticking higher and the futures price near our target level, there simply wasn't enough premium in the call options to justify a trade.  After all, beyond 886 and 900 the next area of strong resistance is at 940.  Strike prices at or above this level were trading at what we considered to be discount prices and not worthy of being sold.  However, we are hoping for another opportunity in the coming days.  Our contacts on the floor note that we could see a day or two of back and filling but believe that there may be a little steam left in this rally.  Let's hope that they are right so that we can get positioned on the other side of this market.

On a side note, a weekly chart of the S&P seems to be pointing toward 940.  That doesn't necessarily mean that the market won't experience sideways to lower trade before making its move, but shorts should be conscience of this possibility. 

500 should act as psychological resistance for the June Russell, but a weekly chart suggests that 520 is not out of the question.  NASDAQ traders may see 1400 in the coming sessions, should follow through buying step in.

* 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.