March 19th, 2009

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Moderate selling, but triple witch...

The surprise announcement by the Fed in regards to the purchase of up to $300 billion in Treasury bonds as well as increase their purchase of mortgage-backed debt securities excited investors today, but I wonder if the euphoria can last.  Keep in mind that they did say, "up to $300 billion" and that implies a considerable amount of uncertainty.  Also, quantitative easing (the central bank buying its own securities) is the equivalent to printing money and in the long-run there are highly negative consequences to doing so.  It seems as though investors had a case of buyer's remorse this morning and we may see a continuation of such in the coming sessions. 

Financial stocks lead the market lower but the selling wasn't as swift as many were looking for.  It seems as though we may not see the brunt of the selling until after option and futures expiration driven position squaring takes place.  Tomorrow is a statistically higher day and it seems as though overnight trade may see some upside ahead of the March stock index futures expiration in the morning.  If you are trading March options, you should already be flat.  If you are still holding positions that are remotely close to the futures market, I suggest that you attempt to get out in overnight trade.  Otherwise your positions will be subject to the contract settlement prices that are sometimes far different from where the futures contract actually goes out. 

I still favor the downside at current levels.  As mentioned, it seems as though some overnight buying may be in the cards.  In fact, I wouldn't be surprised to see a move to or a little below 800 in the S&P but my first resistance is near 787.  However, the market seems vulnerable to a pullback that could extend to 734.  If I am wrong and the market continues higher before the sellers come back the next resistance is 832.

We are looking for a move back to 7,000 in the Dow, but once again there could be some erratic overnight trade (buying).  I see near-term resistance in the Dow near 7,395 and again at 7,473 and these prices may be seen as shorts cover into expiration and option traders re-position. The NASDAQ on the other hand should dip to 1134 within the next week or two. 

If you like our support and resistance calls, come trade with us!  Our clients are free to "pick our brains" and use our projections for their intra-day trades.  This information can be great for traders of all types and strategies. 

* 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 18 - Our clients were recommended to sell the April S&P 870 calls for $7.

March 18 - Our clients were recommended to buy the April 690 puts for $7.

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.