March 5th, 2009

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"Breaking the Buck"

Chinese officials had hinted at additional stimulus yesterday but their retraction of such intentions today put a significant amount of pressure on equities.  Todd Salamone, senior vice president of research, Schaeffer's Investment Research commented, "...this continuous (cycle of) hope leads to disappointment."

The day and day out bleeding on Wall Street has left the market at historically low confidence levels.  Accordingly, there are a significant number of short speculators.  Commitment of Traders data in the futures market suggests that both small and large speculators are betting largely on the downside...or at least they were last Friday. 

Typically when the market is too short, the selling dries up.  Not because people are no longer bearish or because the news is necessarily better, there is just nobody left to sell.  Unfortunately, once the last man get short (or the last buy and hold investors gets out) the market takes the opportunity to punish all of those involved.  Yesterday's short covering rally was a glimmer of what could be in store for the bears.  However, it seems as though the S&P may look to trade in the 860's first; we see support near 666.  The Dow may trade as low as 6,400.

Tomorrow's employment report will be a large factor in the day's trade.  We believe that the market has priced in a horrible number and the odds favor a positive reaction in stocks.  With that said, an immediate dip on the news should be considered an opportunity to get long with either futures or options.  We like trying to sell the 590's for $7 in premium.  Aggressive traders may be interested in getting long near 667. 

* 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 –

March 3rd - I like buying the April 800 calls for about $7 in premium.

March 2nd - Sell a March S&P 620 put for $7.25 or better ($362.50 in a mini and $1,812.50 for a full sized contract).  Place an order to buy this back at $3.  The risk is unlimited and the profit potential is limited to the premium collected.  Be careful with this one!

·         Our clients were buying these back this afternoon for $3.75 to take a small profit of $175 per contract in the mini and $875 on the big contract.  These figures are before commission and fees. 

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.