November 6th, 2008

See me in the latest issue of "Technical Analyst", Trading Volatility with the VIX

Global rate cuts and economic worries weigh on stocks.

Stocks extended losses following massive global rate cuts and ahead of the dreaded non-farm payrolls data.  Adding to the bearish tone, retailers reported weak sales for October and Cisco Systems claims to be experiencing slumping demand.

Stocks have lost approximately 10% in the last two trading sessions, leaving the market with the worst two day record since 1987.  Unfortunately for my retirement account, I don't think that the carnage is over. 

In theory massive rate cuts overseas should have been equity market friendly.  However, the manner and magnitude of the cuts made by the Bank of England and the European Central Bank seemed to panic the global markets.  The Bank of England slashed its key interest rate by a stunning 1.5%, while the ECB took rates down a by 50 basis points.  Investors seemed to interpret the drastic central bank moves as a panicked response.  Accordingly, fears of a "depression" were rekindled. 

All eyes are on tomorrow's employment numbers.  Consensus estimates are looking for a draw of nearly 200,000 jobs in the month of October as opposed to 157,000 in September.  It seems like the tone is already set for another weak number, so the chances of a downside surprise seem slim.  Regardless, the market sentiment is the lowest that I have ever seen and the market will likely be reluctant to rally on a positive reading.  If stocks to bounce on the announcement, I would expect the indices to be met with selling pressure. 

The S&P faces significant resistance near 940 and the Dow near 8,950.  The indices seem to be looking lower with the downside target in the S&P 848 and the Dow near 8,133.  We are looking for the NASAQ to see 1163 by early next week.

Hopefully you were able to buy the November e-mini 850 puts as recommended on the 4th newsletter!

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 –

October 29 - Clients were advised to purchase the November mini S&P 700 puts, fills were at or near $6 or $300.

November 4 - Buy the November e-mini S&P 850 puts for $6 or less

·          If you were able to get in on this trade, place an order to sell it at $27 or better (don't get greedy, if you can get out for a little less take it). 

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 Jones 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

Swing Trade -

Flat

There is substantial risk of loss in trading futures and options.