Stock index futures gapped higher on the Sunday night open on news of the China un-pegging the Yuan.  The flexibility of the currency was seen as a positive for U.S. equities in that a stronger Yuan means higher prices for Chinese exports and, indirectly, more competitive pricing for the rest of the world's goods. 

The Chinese government has been under pressure for some time to allow its currency to appreciate and finally gave into the pressure.  In the past, manipulations to keep their currency low has acted as a barrier to competition and enabled the country to produce and distribute some of the most affordable products on the planet....quality is another issue. 

Although this is a  breakthrough, don't expect the Yuan to be fairly valued anytime soon.  The Chinese government has pledged to limit the daily trading range at .5%.  In other words, the change has more of a symbolic impact than actual and with the G20 meeting coming up it likely has a little more to do with brown-nosing than anything.  Nonetheless, it is a step in the right direction. 

We have a feeling that the current rally might have run its course for now.  The U.S. dollar appears to be on the verge of a rally and this should put pressure on stocks.  Also, well respected analysts such as Mark Gongloff of the Wall Street Journal and Meredith Whitney have cast some pessimism on the markets. 

We had been waiting to see the S&P in the mid to high 1120's, the Russell at 675 and the NASDAQ at 1930.  Thanks to China, these prices were finally seen in Monday's session and we tend to be near-term bearish from here. 

That doesn't mean you should sell the farm and short the S&P, but it does mean that you will likely be best off implementing a strategy of selling into rallies (this might be selling calls, buying puts, selling futures, or any combination of the three). 

If we do get one more run in this rally, resistance in the S&P will be 1133ish, and then again near 1140.  Similarly, if the market runs up once again, Russell traders should look for 683 as a place to be a bear. 

* 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.  Charts provided by Track 'n Trade, Gecko software.

**Seasonality is already factored into current prices, any references to such does not indicate future market action.

Please note: A mini S&P chart is used because it is better for charting purposes, but trade recommendations can be applied to either the full-sized S&P or the mini.  Unless otherwise noted, profit and loss will be based on the mini version.

**There is unlimited risk in naked option selling and futures trading

Position Trade -

Flat

**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.

**There is unlimited risk in naked option selling and futures trading

Position Trade -

*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.