February 23rd, 2009

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Equity Index Futures are consistently weak.     

The trend is your friend and the bears seem to be enjoying the relentless selling and intermittent opportunities to sell into rallies.  Today's selling came on the heels of an overnight rally that brought  the S&P futures near 786 in the electronic night session.  It was noted that the price destruction appeared to be more dependent on a lack of interest in the market than overwhelming selling. 

Coming into the week we were leaning slightly higher, but aware of the possibility of an S&P retest of the November lows.  Now that we are here, we are growing increasingly bullish but cautious.  I cannot think of a time in which investor sentiment has been at such dismal levels and this is often a precursor to a bear market bounce.  Even in November, the weakness was panic driven as opposed to an outright lack of faith in the system as we are experiencing now.  Warren Buffet always says, "Be fearful when others are greedy and greedy when others are fearful".  If the indices can hold support, we could be in store for a surprisingly large short squeeze.   On the contrary, all bets should be hedged or monitored closely as a break down may easily lead to the infamous capitulation in which you do not want to be on the wrong side of. 

Additionally, in the coming days President Obama and Tim Geithner will have an opportunity to "redeem" themselves in term of policy clarity.  Any possible shred of hope in the new administration's plan may be enough to catalyze the short covering rally that we are predicting.  That said, I think that we have all noticed the correlation between the stock market and speeches from the Obama camp.  Tomorrow President Obama will address a joint session of Congress and Fed Chairman Bernanke will testify before the Senate Banking Committee on monetary policy at 10 am Eastern.

Believe it or not, we think that the S&P could make its way back to 817 in the coming week or two and the Dow could see 7,800.  Resistance in the NASDAQ will be found at 1205...assuming that we can get a short covering bounce.

* 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 –

February 18 - Short March S&P 660 puts at $8, looking for a quick rally to cover. 

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.