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August 5th, 2008 Roaring Bulls! While it is commonplace to see large price moves on big news days, it was somewhat surprising to see stocks so active ahead of a major event such as the FOMC meeting. A 200 point rally or fall in the Dow following the announcement would have been more predictable. It is likely that today's rally caught many bears off-guard and on the wrong side of a short squeeze. Whether the Fed's statements were hawkish or dovish is still up for debate, nonetheless, the equity market was pleased. The Fed added the word "significant" to their description of inflation but didn't take action. With the Fed Funds target rate set at 2% stock investors interpreted the "all talk no action" approach as a positive in terms of upcoming price pressures. Aiding this theory was another $2+ decline in crude oil. I don't pretend to be an expert in crude oil but my chart work tells me that the correction could extend itself to $100 per barrel. If I am right, that should be enough to keep a floor under equities and aid in the push toward the July highs. However, a rally beyond near-term resistance may not be in the cards just yet. Along with lower energy prices and failure of the Fed to raise interest rate targets, we will likely need to see economic growth. That seems like a tall order in the coming weeks.
Aside from any unforeseen events that have a substantial impact on the market environment, I expect an impressive year-end rally. Nevertheless, in light of the upcoming election the market may not find footing until much later in the year. Accordingly, I like the idea of implementing a strategy that attempts to take advantage of the potential of range bound trade such as selling call premium against rallies to resistance and also selling put premium against large down moves toward support levels. I don't recommend selling strangles in this environment. A large move one way or the other could result in substantial losses as the implied volatility is bound to increase. 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 Futures and Options 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 Futures and Options 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 Recommendation**There is unlimited risk in naked option selling and futures trading Position Trade – August 1 - If you took our advice, you would be long the September e-mini NASDAQ 1670 puts for about 20 points or $400. www.CarleyGarnerTrading.com 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. |
