January 7th, 2009

Stocks turn over...and should continue lower.

The indices missed their opportunity to extend the rally as many of the buy stops above the market went untouched.  Accordingly, it seems that the path of least resistance will be lower for the indices in the coming sessions.  Friday's jobs data may be the wildcard that could make or break the market. 

Profit warnings and horrendous predictions of the non-farm payroll report by ADP were enough to bring the equity markets under pressure.  Time Warner, Intel and Alcoa all shared bleak forecasts.  This comes after Alcoa reported yesterday that it would be slashing its annual output by 18% and in turn cut its global workforce by about 13%. 

Despite ADP's lack of accuracy at predicting non-farm payrolls, their prediction was so egregious that investors took it to heart.  Economists are calling for a decline of nearly half of a million jobs last month but ADP is looking for a number closer to 700k.  To put the discrepancy into perspective, a miss of 200,000 would dwarf the average total monthly job loss or gain.  Suddenly, a reading in line with expectations (although devastating) will seem like a relief and could provide some sort of floor in pricing in the near term.  There are high stakes and low expectations going into the numbers and this could breed volatility. 

Now that the euphoria has been put on hold, it looks like the major indices will make their way lower in the near term.  My first area of support in the S&P is at 890.  Failure at this level, should keep pressure on stocks and lead to a print at or near 850 in the coming days.  We noted 8,670 as support in the March Dow in yesterday's report and we could see a moderate bounce from this level.  However, heavy trade leads me to believe that we will see 8,330 by sometime next week. 

Support in the March NASDAQ lies at 1,215 and could trigger temporary short covering.  Nonetheless, major support won't be found until 1,162.  Even a pullback to such levels wouldn't violate the overall uptrend that began in November. 

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 –

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 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

Position Trade –

Flat

*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.