March 9th, 2009

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Slow news day, slow stock trade

"You have to be greedy when others are fearful and fearful when others are greedy."  Warren Buffet

The oracle of Omaha himself, told CNBC that despite all of the economic adversity he believes that things will be much better in five years.  He also claims that he doesn't expect that the U.S. will endure a 20-year slump the way that Japan has. 

Warren's comments doesn't guarantee that we have seen the lows but it suggests that we are getting close.  Assuming that price to earnings projections models are accurate, the S&P's expected P/E ratio for this year and next are suggesting that the bear market lows are near.  This theory is based on the premise that we are near a price to earnings ratio in the S&P of 13, which has been historically the average low in a bear market.  Conversely, some bear markets have endured P/E's of 10.  If this is the case in the current bear, the S&P could see 500 before the long-term lows are in. 

For months, we have been pointing out the possibility of the S&P seeing 670 in early 2009.  Now that we are here, it seems as though 650 could be in the works but believe that we are much closer to a rally than many may think.  I can't help but feel the overwhelming bearish attitude coming from the media and many traders.  If all of the bears are in, there may not be many left to sell. 

Bullish traders should look to cautiously buy on large dips, bearish traders should  be tightening stops and protecting themselves from the imminent short squeeze. 

I see support at 667 and again at 652 in the S&P, should the bear market bounce materialize the first level of resistance is 753 (keep in mind that 650ish is possible before the bounce).  New support in the Dow is near 6,400 and possibly as low as 6,320.  However, a short squeeze could lead to a rally to just under 7,300. 

In the previous newsletter, we recommended selling the March S&P 590 puts for $7 or more.  However, our clients were advised intraday to sell the option for $5or better.  For those that were able to get in, we are recommending to take a quick profit (hopefully tomorrow).  We also suggested that aggressive traders buy futures at 667.  Hopefully you were able to get out of this at a nice profit, if not look to exit in the high 690's. 

We have been pointing out long-term support in the March NASDAQ near 1020 and it is finally within reach.  Aggressive traders may want to consider buying futures at this level. 

* 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 5th - We recommended to sell the March S&P puts for $7, our clients were advised to sell them for $5 or better intraday as $7 seemed to be a bit optimistic.  We recommend buying this back at $1 or  better (we may adjust this order as we go). 

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

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 –

March 9 - Buy the mini NASDAQ at 1020 or better.

*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.