March 10th, 2009

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Shorts feel the squeeze!

Many analysts have been looking for a short squeeze and it appears to finally be underway.  We will know tomorrow whether this is a head fake as we have seen in the past or if the shorts will be forced to exit positions.  If the upside momentum continues, our first upside target in the S&P is near 750.  Similarly, the Dow could see prices just above 7,200 before the short covering runs dry. 

If you have been following this report for a while, you likely remember the late February and early March attempts at a short squeeze in which the bears came out on top.  This time may be different...Market pessimism was at or near all time lows and speculators were heavily short.  Even in the absence of fundamental support, the bear market bounce could be substantial. 

The two catalysts for today's rally was an announcement made by Citigroup stating that they had been profitable in the first two months of 2009 and talk of a reinstatement of the uptick rule.  Shares of Citigroup rallied about 35% on the news but it is little solace in comparison to the 80% plunge year to date. 

Talk of the uptick rule started with the chairman of the House financial services committee, Barney Frank.  However, later in the day Reuters reported that the SEC may be considering re-establishing the rule aimed at slowing the pace of short selling within the next month. 

If you took our recommendation to sell puts, you should be out.  If not, we strongly suggest that you exit in early trade tomorrow.  If you took the long option recommendation, it may be prudent to work an order to liquidate and $15 or better or if the futures market reaches 750. 

If you were bold enough to take our aggressive suggestion (dated March 5th) to buy S&P futures near 667, I hope that you were able to liquidate with a handsome profit!

* 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 10 - You should have bought this option back today at a profit.

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

·         March 10 - Place an order to sell these for $15 or better

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.

·         Cancel this order, we missed the move.

*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.