November 15, 2011

It's all about the technical trading wedge...

What can we say?  It was another roller coaster session on Wall Street and traders simply can't get too comfortable in one direction or the other.  We, and several other analysts, have been noting the wedge forming on the daily chart in the December S&P (and also the Russell) and that seems to be the primary driving force behind technical traders. 

Today's low was (for all intents and purposes), the lower ledge of the trading wedge.  Although the dramatic mid-session recovery was triggered by a better than expected Empire manufacturing index, it is difficult to ignore the fact that wedge support held and even seemed to lure in some buyers.  In theory, we should see a test of the upper ledge of the wedge near 1269ish.  Will this finally be the break out to the upside, or will it fail once again?

We apologize for the wishy, washy commentary without much conviction.  If you've been following this newsletter closely, you know we aren't' shy about making bold predictions but to be honest, there really isn't much to go on until the market finally breaks free.  During times like this, less is more...there will be better opportunities down the road. 

From yesterday's newsletter but still valid:

In recent weeks, we have been in the midst of one of the toughest markets I can remember in regard to calling a near-term direction.  It is relatively uncommon for equities to be caught in such a violent, yet tight, trading range; nonetheless, that is today's reality. 

The most difficult aspect of such a market is the fact that the range will be your friend, until it ends.  When prices finally pick a direction and move above resistance, or below support, the mass of accumulated stop orders will be triggered to cause as swift and relentless move. 

In our opinion, the break-out will eventually be to the upside to complete the infamous (and annoyingly persistent) year-end rally.  Of course, other analysts are claiming the break-out will result in the opposite outcome.  In fact, we've spoken to, and read about, analysts expecting a plunge back to the 1070 area.  Only time will tell who is right but regardless of the direction you probably don't want to bet the farm on anything until there is a little more clarity in direction. One thing is for sure, the market will eventually present much higher probability trades for position traders than is currently the case. 

* 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: An e-mini S&P and e-mini NASDAQ chart are used because they 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.

Futures and Options Trading Recommendations

Position Trade -

In other Commodity Markets...

11 - 2 Clients were recommended to sell December Euro strangles; 144/128 strangle for about $1250 for aggressive traders, or the 126/145 strangle near $875 for conservative traders.   

11 - 9 Clients were advised to sell strangles in the January crude oil options, the 114/74 strangle for conservative traders and the 110/77 strangle for those willing to be a bit more aggressive.  Fills on the conservative strangle ranged from $960 to $1140 (vol picked up later in the day).

(Our clients receive short option trading ideas in other markets such as gold, crude oil, corn, soybeans, Euro, Yen, and more.  Email us for more information)

*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.