January 13th, 2009

Can Presidential transition help market sentiment?

Anxiety over earnings, the credit markets and the economy have created a cesspool of negativity on Wall Street.  It seems as though the only saving grace for the equity markets is the ill conceived hope that President-elect Obama will be able to turn things around on dime.  With sentiment at such dismal levels the market looks to be vulnerable to the reality of a post-inauguration world. 

I am not a political blogger, so I will keep my personal opinions on the upcoming administration's policy.  However, will voice my opinion on the incredibly high bar that has been set by the media and the apparently bleak prospects of anybody being able to live up to such expectations.  I fear that following the inauguration we could be in store for the final market plunge that many have been waiting form.  If it does occur, it will likely be one of the best stock market buying opportunities that any of us have seen in our lifetimes but will be enough to flush out many long term investors.  Unfortunately, based on historical standards, it is common for the market to recover sharply after many have liquidated their holdings out of panic only to be left on the sidelines to watch the subsequent rally. 

In the meantime, President-elect Barack Obama is begging Democratic senators not to hinder the $350 billion in bailout funds that he sees necessary to revive the economy.  Along with the pleas came a pledge to correct the "shortcomings" of the first handouts administered under TARP.

Keep in mind that poor expectations for earnings are likely already priced into the markets.  It isn't rare to see equities sell-off prior to earnings season only to recover as the news hits...assuming that the numbers aren't as horrible as the market is anticipating. 

Hopefully Alcoa's earnings aren't a sign of things to come.  The aluminum giant reported that it lost $1.19 billion during the fourth quarter on plunging demand for aluminum. 

With the major indices nearly reaching our downside target objectives, we are beginning to suspect that a short covering rally could ensue during tomorrow's option expiration.  Support and resistance levels in the S&P are 845 and 890 respectively.  We see technical support in the March Dow near 8,270 with resistance at 8,638.  The NASDAQ will be supported by 1162 and faces resistance near 1200.

If you like our support, resistance and target numbers you should consider trading with us (if you aren't already), we have similar intraday analysis that is communicated to our clients upon request by email, instant message and phone. 

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.