November 25th, 2008

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Stock Market looking higher, don't get in its way!

Stocks spent the Tuesday before Thanksgiving digesting one of the biggest two day rallies in history.   Despite an early morning rally on news of government plans to aid consumer lending companies, the major indices finished the day near unchanged but did spend a considerable amount of time in negative territory. 

It is important to note the magnitude of what we have just witnessed.  The market soared nearly 11% through the course of Friday and Monday marking the first back-to-back gains in three weeks. 

The Treasury Department and the Federal Reserve are working towards a plan to provide $800 billion to help unfreeze the consumer debt markets.  In theory, this will help to make mortgage loans cheaper and more readily available.  The attempt to stabilize the credit markets are aimed to entice lenders (credit card companies, student and auto loan providers, etc.) to resume more "normal" levels of lending. 

Although you wouldn't know it by looking at the bond market, today's economic data and news events support a struggling yet recovering economy.  The Commerce Department's consumer confidence index showed surprising strength.  The index was reported at 44.9, well above the sub-40 analyst estimates.  The preliminary GDP numbers weren't as promising, but weren't the end of the world either.  Gross Domestic Product is believed to have shrunk by .5% in the third quarter. 

Keep in mind that the markets like to "give thanks" before and after the Thanksgiving holiday.  The day before, and the day after, turkey day have historically been positive for equities. 

We are still looking for an advance above 890 in the S&P and 8,700 in the Dow.  However, today's highs weren't incredibly off the mark.  Therefore, our outlook higher should be taken with caution.  With that said, seasonals are suggesting a rally into week's end and the light volume seems to be helping the bulls' case.  Let's see what happens. 

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 –

November 12 - Our clients were advised to buy the December e- mini S&P 500 1030 calls for $6 in premium or $300. 

November 19 - If you are willing to take on the risk, the premium is looking attractive in puts.  I like selling the December e-mini 575 put for $10 or better.  This is equivalent to $500 and has a breakeven point of 570.  Risk is unlimited below 570.

·         This would have been filled on Friday, we recommended buying it back for $3 or less on Monday (you should still be able to get this price or better tomorrow).  Assuming a fill at $10 to get in and $3 to get out, the profit would be $350 per contract before commissions and fees.

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 –

November 18 - There is a lot of premium in the puts, it is scary but selling seems to be a good call.  I like selling the December mini- Dow 6000 puts for 100 or better.  It will take additional weakness to get this filled. 

·         This would have been filled late last week. 

·         Place an order to buy this option back for 30 or better (don 't get greedy, if you can get out for a little more you should take it). 

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