May 8th, 2009

If you missed our online option trading class with the New York Institute of Finance (I know most of you had scheduling conflicts), you can view the archive for free by clicking here: http://tinyurl.com/CGrecording

Not so bad = Good

The major stock indices found comfort in alleviating the uncertainty surrounding the stress tests and the employment report.  Each event offered overall negative news but also eliminated many suspicions of disastrous scenarios. 

With investors looking at a potential depression in the rear-view mirror, the market is approaching a major crossroads.  It seems as though the market rallied prior to the streak of better than expected economic numbers and will likely turn over before expectations begin overshooting reality.  On the other hand, we are in a scenario that has never been seen before.  There is a significant amount of cash on the sidelines and if investors begin fearing that they are missing the boat, dollars could flood the markets for no apparent reason. 

At the moment, we still believe that the market will need to digest the rally if there are any hopes of sustaining gains in the long-run.  We can't rule out a run to our noted 940 target, or maybe even 950 if the shorts are really squeezed, but the S&P should begin to struggle.  Perhaps next week's option expiration will be the catalyst necessary to get the ball rolling for the bears. 

In the last newsletter dated May 6th, we noted that we liked the idea of buying the May 875 put.  We actually ended up getting filled on the 880 put near $5.50 and were lucky enough to exit near $10.75 on the dip yesterday.  Yes, that's right I said lucky.  I like to make it a rule that anytime an option is purchased and can be liquidated at double the entry price in the same session it should be exited. 

Dow 9,000?  Based on our weekly chart analysis it is possible, but we still feel as though a correction must occur in the near-term.  We continue to believe that the Russell will fail to hold above 520 if it sees it.  The NASDAQ is in need of a pullback, but it looks to be wanting to move back to 1440 before it happens.

If you are long futures, you should be tightening stops.  If you are trading options, buying puts and/or selling calls is the way to go but you must be patient in regards to the entry!  Bears must be willing to ride out the potential move to 940. 

* 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.

Russell 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.