April 30th, 2009

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Mutual fund buying dries up

Traders claim that sidelined cash has been put to work in recent trading sessions but note that mutual fund buying seemed to taper mid-session.  In yesterday's newsletter we mentioned that the market was statistically bullish on Thursday and Friday of this week.  While the market failed to hold gains, it seems as though the stats didn't lie. 

Economic news was mixed to slightly negative but the market persevered.  Consumer spending was reported to be slightly lower than expected but weekly jobless claims showed stabilization in the employment sector.  The biggest story weighing on the market was the unsurprising announcement of Chrysler filing for Chapter 11 bankruptcy. 

We are a little uneasy about the near term direction as the daily charts are suggesting that the highs may be in but the light volatility, tight trading range and weekly chart are all giving hints of a move up to 940.  Once again, we would like to be bearish, but our strategy of choice (selling calls) doesn't seem to be panning out.  This morning we could have received nearly $5 in premium for the 940's but at the time the futures were trading in the 880's and didn't seem to be enough room for error for such a small amount collected.  60 points may seem like a lot of breathing room, but in a market that is being driven by short covering and with little technical resistance above 900 this trade could have been compared to picking up pennies ahead of a steamroller.  Hopefully, we will get a better opportunity. 

In the meantime, we opted to go with a trade that is similar to watching paint dry...but may be good for a small profit.  The Eurodollar has been somewhat correlated to the stock indices in recent months, accordingly we recommended that our clients go short the June Eurodollar as a way to indirectly play the equity markets with light margin and risk.  Besides, the Eurodollar looks to be a bit overbought and short-term yields are low.

The S&P reached our upside resistance at 887 and backed off sharply...but tomorrow is slated to be a positive day.  We could get a retest of today's highs and maybe the mid 90's as mutual funds pour cash into the markets.  However, selling a sharp rally (if it happens) could be a good day trade. 

In yesterday's newsletter, we also noted 500 as psychological resistance for the June Russell.  However, we still maintain that 520 is possible in the near future.  Our target of 1400 in the NASDAQ was surpassed and perhaps has seen the highs, but if we are right about the other indices the NASAQ should also make its way slightly higher in early trade tomorrow.

* 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-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.