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June 10, 2011

Join us for Part II of Getting Started in Currency Trading online seminar June 16th, at 3:30 Central, click here for free registration!  

Bears maul stock index futures bulls but will it last?

Yesterday's sharp short covering rally appeared to be the beginning of the end of the correction, but that theory proved to be inaccurate.  After what has been one of the longest (but not the deepest) corrections in the last decade, the market was unable to stay in the green for longer than a session. 

To the bears, this looks like absolute despair...and they are likely licking their chops.  However, as a contrarian I have to say that although this move has been a bit deeper than I had originally anticipated I still feel like (at some point) the risk could be to the upside and not the down. 

When stocks are rallying, all we read and hear about investing is to "wait for a pullback to get long" but when the market finally pulls back, it seems all we hear is "run for the hills".  When equities slide it can be nearly impossible to pick a bottom, and it almost always goes further than "most" are anticipating...if it didn't there wouldn't be a challenge and the markets wouldn't work.  Remember, for every winner there is a loser and unfortunately, we can't all win. 

Now that a majority of the technical oscillators are "embedded", it becomes much more difficult to predict where the turn might occur.  It seems the chatter is looking for about 1250 in the cash market S&P, which means we'll probably find a low moderately above that price or moderately below (simply because anything else would be "too easy").  Unfortunately, we won't know which (if either) until after the fact. 

Yesterday we mentioned the possibility of a retest of the lows, but we weren't expecting a blow out of the lows.  However, this is what we have to work with. 

Although it was on our radar to sell puts in the S&P, the premium offered by the market simply wasn't worth the risk and we are pleased that we didn't force a trade.  On the other hand, we are growing anxious to get in on the action.  It looks like the September S&P could be headed for the mid to low 1250's (which puts the cash index about 6 handles higher) and possibly as low as 1235ish to 1240.  Should the market decline to such levels we will be tempted to begin taking action on the long side of the market. 

If you are holding bearish positions and sitting on large profits, we congratulate you but encourage you to hedge your bets, lighten up or simply lock in your profit and turn the computer off.  Oversold markets can turn suddenly and violently, so why torture yourself by letting a great trade slip through your fingers?

Calls are cheap!  If you want to buy a lottery ticket, we like the July S&P 1310 calls for about 7.5 in premium ($375 on an e-mini).  1310 is not out of the question in the next 30 days, we were just there last week!

**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

**There is unlimited risk in naked option selling and futures trading

Position Trade -  

Flat

In other markets....

June 2 - Clients were recommended to sell the July Euro 150 calls for about 36 ticks.

June 1 - Clients were recommended to sell July bond 128 calls for about 30 ticks.

June 6 - Clients were advised to offset short bond calls at 15 ticks, or a profit of $235 to $300 per contract before transaction costs.

June 7 - Clients were advised to add to short Euro call positions by selling the July 151 calls for about 37 ticks.

June 9 - Clients were advised to offset the July 151 Euro call near 17 to lock in a profit of about $250 before commissions and fees. 

June 10 - Clients were advised to buy back the July Euro 150 call for about 14 ticks to lock in a profit of $275 per contract assuming an entry of 36. 

(Our clients receive short option trading ideas in other markets such as gold, crude oil, corn, soybeans, Euro, Yen, and more.  Email us for more information)

*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.