February 2nd, 2009

See DeCarley's article on option selling in the bonus issue of Stocks & Commodities Magazine!

Stocks struggle to make progress, bears in control

Domestic equities suffered from overflow selling in foreign markets but it was downbeat economic news and corporate announcements that prevented gains.  News that Macy's will be cutting 7,000 jobs and Morgan Stanley may be laying off up to 4% of its workforce proved will likely keep pressure on stocks in the coming sessions. 

The market is anxiously awaiting the economic stimulus plan that is now before the Senate but the chaos and uncertainty surrounding the details may keep any bullish reaction muted.  This stimulus package was passed by the House last week, despite a lack of Republican support; the GOP argues that the plan is too expensive and should include tax cuts to spur economic growth. 

Given the tendency of the equity markets to set the tone for the year in January, we aren't off to a good start.  January of 2009 turned out to be the worst ever recorded.  Unfortunately, February doesn't have a good track record.  Although it is within what are considered to be the "best six months of the year" the market tends to post losses more often than not in February.  Keep an eye on the trading session before President's Day which has been down 14 of the last 17 for the S&P with consecutive losses occurring in 1992 through 2002. 

Contrary to seasonal tendencies, tech stocks outperformed the broad market in Monday's session.  According to Keith Springer, president of Capital Financial Advisory Services, "Technology is one of the sectors that people, businesses are always going to need."  He added, "There's a feeling that corporation are going to continue to invest in technology." 

However, we are still expecting continued weakness in the near-term in all of the indices.  We are looking for the March NASDAQ futures to trade lower to 1130 before finding meaningful support.  Likewise, we are now projecting that the S&P will trade below 790 and the Dow below 7,700 before a reversal can occur. 

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 –

January 28 - Buy the Feb S&P 760 puts for about $350.  **This recommendations was made in the text of the 28th newsletter but was accidentally referred to as March. 

·         January 30 - Clients were recommended to exit this trade in late trade on Friday for about double their money (some may have gotten a little more, some a little less). 

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.