May 5th, 2009

Register for our "Talk to Series" option trading webinar hosted by the New York Institute of Finance and presented by DeCarley Trading!  Visit our websites for details.

Bernanke optimism deters bears

Stock market bears seemed to be reluctant to sell into overbought market conditions and Federal Reserve Chairman, Ben Bernanke, may have been the glue holding the rally together.  Bernanke told congress that the economy should begin growing again later this year.  This is the brightest forecast provided by the Fed Chair since last year. 

On the other hand, Bernanke also reminded listeners that the growth will be subpar and we could see a continuation of sizable job losses.  Also preventing what could have been a more significant pullback of the broad market, the Institute for Supply Management reported that the economy is contracting at a slower pace.  Their index of non-manufacturing activity was reported at 43.7, nearly 2 points better than the previous month's. 

Later in the day, Goldman Sachs announced that they have changed the rating of Bank of America to "outperform".  They also noted that U.S. banks are "attractive".  In theory this is good news for the market; after all, it was  the financial sector that lead equities higher.  However, we can't help but believe that much of the near-term buying was expended before the announcement and that the flurry of short covering yesterday essentially built in this type of news. 

In yesterday's newsletter we mentioned that Tuesday was a statistically neutral day and that is exactly what we saw.  Conversely, based on historical data the odds are favoring the downside in the next two sessions.  We are leaning very cautiously lower, but can't rule out one last push higher.  Resistance in the S&P lies at 911 and again near 920. 

As far as the other markets go, we are sticking to our original numbers:

On Friday we pointed out Dow resistance near 8,400 and today's high wasn't too far away.  However, the next ceiling should be found near 8,440.  We think a temporary pullback is looming which could extend to just above 7,800.  We still see the next major resistance area on the NASDAQ near 1495 but if you are bullish this market you should tighten stops, as a sizeable pullback (1350) seems necessary.  Additionally, we feel as though the June Russell futures could see 520 but overbought conditions leave the risk to the downside.

* 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.