January 9th, 2009

Close below 891 in S&P suggests 850 is next.

Equities found temporary solace in the fact that the jobs numbers were in-line with analyst expectations and substantially better than ADP's miss.  The futures market managed a slight up-tick on the news but the cash market open on the NYSE quickly changed the mood.   As we had predicted in yesterday's newsletter, a Friday morning bounce proved to be a good time to  be a bear.

The unemployment rate was reported to be at its highest level in 16 years, 7.2%.  The domestic economy is said to have lost 524,000 but negative revisions in prior months seemed to eventually be the straw that broke the camel's back. 

Profit warnings from Chevron, resignation of Citigroup director Robert Rubin and woes in the technology sector added salt to the wounds of bulls.  As a result, the broad-market experienced the worst trading week since November.  Unfortunately, it doesn't look like the bloodletting is over. 

Next week is slated to be an exciting one in terms of economic data.  We will hear from the U.S. Department of Labor regarding consumer and producer prices, which are expected to show slightly negative inflation figures (deflation).  We will also get wind of the current retail sales figures, manufacturing data and consumer sentiment. 

Although, most of the announcements are expected to be dismal, there shouldn't be anything to surprise the markets.  With that said, there likely won't be anything that is capable of improving investor sentiment until we get closer to technical support levels.  While we may see a "dead cat bounce" on Monday, I expect the major indices to continue their grind lower. 

Our target in the S&P remains 850 but don't be surprised to see an recovery early in the week that could see the March S&P near 900 or maybe even 913 before continuing the down move.  Our new target in the Dow is 8,317, with resistance near 8,658.  Interestingly, the NASDAQ has held our support levels and may see the strongest recoil on Monday.  Nonetheless, if the broad market trades heavy it will break tech stocks down and we should see 1162 sometime next week. 

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.

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