Monday, February 8, 2010

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No follow through, both bulls and bears vulnerable

Monday’s trade was eerily calm coming off the heels of one of the most active trading days in history.  According to the Wall Street Journal, the CME saw over 18.6 million in futures and options traded on Friday.  This was the highest volume trading session since September 18th in 2008.  If you recall, September 18th was at the height of the Lehman Brothers blow up and on this day the CME traded about 21.4 million contracts which is over twice the average daily volume in 2009.

Investors continue to express concerns over the stability of the economic recovery and excessive debt levels in some European countries such as Greece, Portugal and Spain.

Investors are looking forward to Wednesday’s Bernanke testimony focused on the Fed’s intention to begin reversing the massive stimulus efforts that were put into place during the downturn.  The programs were aimed at pumping money into the economy to keep rates (specifically mortgage rates) low.  Unfortunately, cheap money for the banks hasn’t translated into loans issued to consumers.  Instead, lending has fallen off of a cliff as some banks have used the “cheap” money to invest in assets such as U.S. Treasuries.  Nonetheless, the Fed would like to begin restricting money flow (even more) without stamping out the dimly lit economic flame.  As you can imagine, this will be a challenging task and, therefore, the markets will be all ears.

We were disappointed in Monday’s follow through buying.  Given the event risk and the market’s jitters there is some risk of another probing low before a more sustained rally can take hold.  If this is the case, a retest of the recent lows, or even moderately new lows are possible and could be a good time to be a bull.

However, aside from what could be one more “flush” of the bulls…we still think that the market will need to see some back and fill trade to the upside.  Once a bounce takes hold, we could see 1085 in the march S&P and 1100 isn’t out of the question should the news be supportive.  .  If you are trading the Russell, similar levels are 604 and 615 and in the NASDAQ at 1773 and 1810.

* 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.  Charts provided by Track ‘n Trade, Gecko software.

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

Please note: A mini S&P chart is used because it is 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.

S&P 500 Futures and Options Trading Recommendations

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

Position Trade -

January 21 – Our clients were advised to sell the March S&P 1000 puts today following the drop in an attempt to capture the market volatility in the put premium.  Fills were coming in from $8 to $9.

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 -

January 27 – Buy 1 e-mini NASDAQ near 1781

• February 3 – Place an order to exit this trade at 1830 OB

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Carley Garner

Senior Analyst / Commodity Broker
DeCarley Trading
cgarner@DeCarleyTrading.com
1-866-790-TRADE
Local : 702-947-0701

*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.