February 9th, 2009

See DeCarley Trading's "Trade Like a Girl" article in the March issue of Stocks Futures and Options Magazine!

Delayed stimulus announcement keeps market afloat.

Economic news was scarce, but investors found solace in Obama's pledge to curb an economic meltdown.  Today the newly elected President spoke to the citizens of Elkhart Indiana in an attempt to garner support for his stimulus package. 

It is expected that the Senate's version of the bill will be passed on Tuesday.  From there it must be reconciled with the House's version of the plan which totals about $820 billion vs. the Senate's $827.  According to Obama, there are no assurances that every item in the stimulus plan will work but he has no doubt that "delay or paralysis" in Washington could deepen the country's crisis.  He claimed that "Doing nothing is not an option," he added, "We've had a good debate.  Now it's time to act."

As stock traders look to Washington for help, the event risk continues to mount.  All the while, volatility levels are shrinking to make me believe that we could be seeing the calm before the storm.

It was brought to my attention that some fund managers are expecting a sharp rally to occur that could  bring the S&P to levels as high as 950 in the coming weeks.  However, I am also being told that the same managers would like to be short from such levels. 

I am having doubts that the S&P will be able to overcome resistance near 876 and 881.  Accordingly, short futures and long puts seem to be a good play at such levels.  However, option sellers may want to shy away from selling call options as the volatility is light and the risk/reward prospects may not be attractive.  Should we see a short squeeze to 950, traders short call options will likely feel the pain.  I would prefer to wait for either higher prices and volatility to feel comfortable utilizing a short call strategy. 

For now, we are sticking with the upside projections pointed out in previous newsletter.

It is my guess that the S&P will find resistance near 875 and again at 881 before the selling resumes.  Similarly, resistance in the Dow should be found at 8,490.  The NASDAQ seems to be at a significant area of resistance but may see 1320 before a reversal can occur. 

 Nonetheless, we are slightly less confident in the analysis as it seems as though the market could easily break higher or lower from current levels based on news out of Washington. 

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