May 18th, 2009

Carley's book is being featured on FXStreet.com, check it out! http://www.fxstreet.com/education/forex-books/books  

Stocks up post-expiration  

Investor optimism was renewed by better than expected housing data, impressive earnings from Lowe's and positive analyst comments in regards to the banking sector.  According to Richard Bove of Rockdale Securities, the potential for "explosive earnings growth and unusually strong stock price performance" exists in the banking sector.  Additionally, Goldman Sachs has raised its rating on Bank of America to a "buy". 

According to data released throughout the day, homebuilder confidence has ticked higher and so has building permits and housing starts.  While it is too early to call any type of bottom in real estate, it does appear as though there are signs of stabilization. 

Last week's trade closed on a sour note, but it is now clear that option expiration may have played a role in equity weakness.  We have been calling for a sharp rebound from last week's correction but I will admit that I didn't quite think that it would happen so fast...and with such a lack of back and filling.  Today's session was highly one sided; most likely due to the fact that shorts were covering on all small dips which prevented "normal" digestive declines.  The light volume leaves the rally somewhat suspect, and leaves me thinking that an overnight pullback in stock index futures is likely.

We are sticking to our previous call in the S&P:

Our major support area in the S&P near 877ish has managed to hold, as we have mentioned in previous newsletters; if this continues to be the case we could see a rally in the S&P to retest the recent highs and may be even reach the 940 area, 950  being our distant possibility.  If we are wrong about the market's direction from here, a clear break and hold below 873 or so could lead to a much larger move to 820. 

Last week we mentioned that the June NASDAQ will need to trade above resistance near 1374 in order for the rally to resume.  It now looks like that is the case.  Our next upside target is 1440.  We noted that traders should be looking to buy the Dow on dips, with major support at 8,190 and this would have turned out to be a great place to be long.  A pullback to 8,300 isn't out of the question but we are looking for a move to 8,640.  We have mentioned  that the Russell needed to break through resistance near 483 to make progress on the upside and now appears to be headed toward the 515/520 area. 

* 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 –

Flat

Russell 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.

Past performance is not indicative of future results.  The information and data in this report were obtained from sources considered reliable.  Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities.  Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.