February 17th, 2009

Stock market low may be blooming, but near term danger.   

Investors weren't given a reason to buy into equities, so they didn't.  The selling pressure took the S&P below the 800 level for the first time since the notorious November lows set on the 21st of that month.  Among the sectors hardest hit were energies, financials and big manufacturers. 

The Obama administration's $787 billion stimulus bill isn't being given confidence from the street despite White House hopes the package will create 3.5 million jobs.  New data suggests that the price tag on each of those jobs is in such excess that it is a negative net proposal to the economy.  In an overly simplistic example, if the government expends $200,000 in resources to create a job that will pay $50,000 annually which may or may not last long enough to actually "pay back" the economy...everybody falls short. 

Also detracting from any optimism that the markets may have in regards to the stimulus package, is the ongoing saga in the automotive industry.  General Motors and Chrysler spent all night negotiating with the UAW (United Auto Workers Union) in hopes of reaching a restructuring deal that could be presented to the federal government.  Many feel as though the final deal may not materialize until after the government set deadline.  Union officials were said to be blaming the delays on Obama's failure to appoint a "car czar" to oversee operations.  However; the administration announced on Sunday night that a task force would be working with the restructuring plans of the automakers. 

Markets in general, but specifically equities, are built on trust in the system and faith that each of the components of the system are working toward a greater good.  Investors have lost conviction in Wall Street and until it returns the markets will have a difficult time sustaining gains.  In the meantime, the major indices are oversold and should see a corrective bounce.  Our clients were recommended two alternatives ideas; purchase February calls (we were getting filled on the 820 calls for $7.25 or $325 plus commission and fees), or sell March puts (we were getting filled at 660 puts for $8.00 or $400 minus commissions and fees). 

* Due to time constraints and our fiduciary duty to put clients first, the charts provided in this newsletter may not reflect the current session data.  However, market analysis and commentary does.

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.