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May 27, 2011

Check out the latest "Futures for You" column in Stocks & Commodities Magazine, click here to read!!   

Stock index futures set up for more short squeezing?

Pending home sales dropped 11.6% after rising 5.1% last month despite historically low interest rates and ridiculously cheap real estate (at least in the part of the country that I reside).  Also, personal income and spending data suggests that incomes are dropping but spending is dropping even more.  Nonetheless, the public hasn't gotten the memo...the Michigan Sentiment suggested that confidence in the recovery has exploded along with tumbling gas prices and a nice 2011 run in equities. 

It is easy to point out the reasons as to why the stock market might go down.  In fact, if you've visited any of the trading blogs and forums lately you've likely noticed an abundance of hostile bears.  Perhaps these are the same bears that lost money shorting from March of 2009 through today? Otherwise, I can't figure out where all of the frustration is coming from. 

I included this in yesterday's newsletter but I think it is worth repeating:

I ran across this comment string on the Yahoo Finance page...On a simple and very short news story with the headline "Wall Street Bounces Back for a Second Day" most comments were unfriendly and decisively bearish.  Here are a few of the tamer examples:   "You call 8 points on the dow a bounce back? More like treading water." " i hate the tribe responsible for this folly" " The only bounce on Wall Street going forward will be the checks we get for our 401Ks!" "Wall Street Bounces Back for a Second Day.  "Dead cat bounce, now closing lower. Pathetic." " Yeah a 7 point bounce... we are all getting rich now.... This market will tank later this summer... Oh wait, I am wrong on this prediction as I forgot this is Summer of Recovery Take II.... LOL..." " bucks is a bounce back ??!!!! ROTFLMAOL . Wait for the USA AND GREEK DEFAULTS"   

There are more, but you get the idea.  Being the contrarians that we are, we can't help but feel as though the overly confident bears could be forced to run for the hills in the coming sessions.  The end of May is notoriously bullish for equities and it appears as though sentiment might have tipped a little too much to the bear camp and trading just isn't that easy. 

Ironically, these people alone make me think the market simply isn't ready to go down yet.  Markets don't go down just because "everybody" thinks they should or will, they do it after the  bears have given up and the bulls are complacently lacking attention.  Also, we are in an environment in which weak economic news doesn't necessarily mean lower stocks.  In fact, some speculators take it as a sign of more government intervention and, therefore, market support. 

Another factor favoring continued strength in the S&P over the next week, or maybe even two, is a strong bullish tendency in late May that continues into the first week of June.  We aren't suggesting it will be off to the races but we do think the June S&P futures could easily see somewhere in the ballpark of 1360ish before possibly turning back around.  In the meantime, look for support areas near 1320 through 1316ish. 

If we are right about the S&P, the Russell could see 860 and the NASDAQ future above 2400. 

**Seasonality is already factored into current prices, any references to such does not indicate future market action.

Please note: An e-mini S&P and e-mini NASDAQ chart are used because they better for charting purposes, but trade recommendations can be applied to either the full-sized S&P or the mini.  Unless otherwise noted, profit and loss will be based on the mini version

Futures and Options Trading Recommendations

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*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.