May 29th, 2009

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Directionless, but it didn't last

Shrinking volatility and tight ranges in the equity index futures have left us with butterflies in our stomachs.  The bulls and bears have been battling throughout May without a resolution.  We have essentially watched the S&P trade in a 55 point range that was carved out early in the month.  As boring as things have become, we can't help but feel as though June will be a different story.  If the last 20 minutes of trade in May is any indication of things to come, we should all brace ourselves. 

What seemed to be destined to be a sideways trading session ahead of a much needed weekend turned into one of the most volatile closes that we have ever witnessed.  The S&P rallied nearly 20 points in the last 30 minutes of the day to trigger buy stops beginning above 910 and reaching the high 920's in the e-mini version of the contract.  Other than light volume and stop running, there seems to be no logical explanation for the move. 

In yesterday's commentary, we mentioned :

...this type of trade is typically a precursor to a large move. Direction?  Great question; my best guess is that we are eventually headed lower.  However, bears should be careful in getting too comfortable because my charts are still pointing toward a potential run at the highs before turning over.  In other words, we could see one last "sucker's" rally to lure in the last Johnny come lately before the bears are finally rewarded once again. 

Today's late session rally appears to  be the move, or at least the beginning of the move, that we had been waiting for to become bearish.  Unfortunately, it happened so quickly and unexpectedly, that selling calls (as was our original intention) was impossible.  It is possible that today's seemingly illogical move may have paved the way for a move toward our key resistance near 940/950 in the S&P, so we will begin cautiously looking for bearish opportunities should the market continue moderately higher.

As it turns out, our resistance areas in each of the indices were achieved near the close of trade.  However, they should still lure sellers back to the markets.  Look for first resistance in the S&P near 926 with 940 within reach, 900 still offers considerable support.  Dow traders should look for resistance near 8,560 and again at 8,850.  Support can be found at 8,375.  We think that 513 is the next stopping point for the Russell and the NASDAQ may see 1470 before turning back around.

* 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

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.

Past performance is not indicative of future results.  The information and data in this report were obtained from sources considered reliable.  Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities.  Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.