Futures Market Blog

March 3rd, 2009

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Slow data day, but lots of chatter

There were only a handful of government economic reports released during the session, but comments from President Obama and testimony by Fed Chair Bernanke and Treasury Secretary Timothy Geithner kept traders on their toes.  Some of the mid-day buying was enticed by Obama’s claim that share prices are a potentially good deal at current levels.  However, the good mood didn’t last.

Bernanke wasn’t the cheerleader today that he was a few weeks ago but all in all there wasn’t an overwhelmingly negative response to his Congressional testimony.  Lawmakers were relatively hard on the Fed chair when it came to the latest bailout of AIG.  Nonetheless, Mr. Bernanke insists that the economic recovery hinges on the government’s success in stabilizing the financial markets and this includes the larger players.  He didn’t speak highly of the operations of AIG and the circumstances that allowed for their demise.  “I share your concern, I share your anger.”  He added, “It’s a terrible situation, but we’re doing this to protect our financial system and to avoid a much more severe crisis in our global economy.”

On the economic front, GM sales in the U.S. dropped 53% in February.  The firm intends to produce 550,000 vehicles in North America next quarter.  In the same quarter in 2008, GM made 834,000.  Ford sales weren’t much better, they reported a decline of 48% last month.

In yesterday’s newsletter, we mentioned that we were looking for a “relief rally but suspect we will see a little lower before we see higher prices.”  Although, we did see lower prices in today’s session as we were predicting, it seems as though another day of declines is likely.  That said, it seems as though a major low is setting up.  If you are short this market, you should be playing with tight stops as the backlash could be vicious.  Option traders should be buying calls and selling puts…or all of the above.  I like buying the April 800 calls for about $7 in premium.

We see major support in the S&P at 677 but once the short squeeze begins we could see 791 in short order.  Support in the Dow is now 6,620 but with so many bears a turnaround could lead to a push toward 7,400.  We still see 1020 as the next major support in the NASDAQ.

* 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 2nd - Sell a March S&P 620 put for $7.25 or better ($362.50 in a mini and $1,812.50 for a full sized contract).  Place an order to buy this back at $3.  The risk is unlimited and the profit potential is limited to the premium collected.  Be careful with this one!

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

———-

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

www.CarleyGarnerTrading.com
www.DeCarleyTrading.com

*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.

S&P Daily Commentary for 3.3.09

The S&P futures are up slightly after Monday’s intense sell-off as investors await Pending Home Sales and Fed Chairman Bernanke’s testimony before Congress.  U.S. equities came under intense selling pressure yesterday despite slightly better than expected ISM Manufacturing PMI and Consumer Spending data.  Investors were locked in on the government’s most recent bailout of AIG after the insurer posted a horrible earnings loss.  The term traveling around town is ‘systemic risk’.  In other words, companies such as AIG and Citigroup may be too big to fail, posing substantial risk to the entire financial system.  Citigroup logged another 20% loss while BofA lost another 8% and change.  Furthermore, corporate behemoths such as U.S. Steel, Alcoa, Dow Chemical and GE continue to post significant losses which are overshadowed by the situation of the U.S. banks and insurers.  Additionally, we can’t forget GM and Ford are around $2/share.  Once one steps back and takes a look across the board, the problem is much bigger than the banks.  If the sell-off should continue, we could soon see Dow, GE, and Alcoa each trading under $5/share.  The concept is a bit extreme, showing the significance of the economic contraction taking place.  Not only are investors pricing Citi and BofA for broke, soon they could be pricing the core of the American economy for bankruptcy.  The longer Citi, AIG and the lot stay afloat, the longer the downturn could last.  Therefore, we would not be surprised to see the U.S. ‘seal the deal’ relatively soon and follow through by nationalizing Citi, AIG, and possibly Bank of America.  Who knows, big brother may have to swoop in and pick up GM and Ford along the way.  The focus will come down to raw economic data.  If the data does not improve, neither does the stock market.  Since Obama’s stimulus packages could take months to trickle down into the economy, the government may have to act soon rather than later.  Meanwhile, the S&P futures are finding solace in the psychological 700 level.  However, we have not seen a high volume buying spree yet, showing investors aren’t quite ready to initiate a temporary bottom.  If the S&P should fall below the 700 area, we could see some more significant selling before the buyers finally step in and stabilize equities again.  Fundamentally, we find resistances of 712.75, 717.25, 723.75, and 730.75.  To the downside, we see supports of 708 and 700.  The S&P futures are currently trading at 708.25.

S&P Daily Commentary for 2.26.09

The S&P futures ended a volatile session on a low note Wednesday after President Obama discouraged investors by implying increased government oversight of financial institutions.  Furthermore, Existing Home Sales data was discouraging, showing the housing market has yet to bottom out.  Therefore, despite the psychological initiatives via government stimulus and reassurances from Fed Chairman Bernanke, critical data continues to paint a bleak economic picture.  Encouragingly, the banks and auto manufacturers are stabilizing a bit, easing fears of bankruptcies.  The U.S. will release more key economic data today including New Home Sales, Durable Goods Orders, and weekly Unemployment Claims.  Around the globe, investors will be keeping a keen ear on what Trichet and King have to say about the European and British economies, respectively.  Additionally, Japan will release a slew of economic data in the evening, showing us just how bad the Japanese economy is.  As a result, Thursday could provide more than enough evidence to heighten volatility over the next two trading sessions.  Correlation wise, Crude futures are breaking out while the 30 Year is flirting with the idea of falling below February lows.  Therefore, the correlations are creating a situation where the S&P futures could see a nice pop to the upside with a possible retest of the psychological 800 level.  However, conditions remain highly sensitive and could swing one way or another at the drop of a coin.  Our downtrend line is still bearing down on the S&P futures with the uptrend line well out of reach.  Therefore, we have no circumstantial evidence to alter our negative outlook on U.S. equities.  Fundamentally, we maintain our resistance of 774 with fresh 2nd tier and top-end hanging at 782 and 789.75, respectively.  To the downside, we hold our support of 766.25, with 2nd tier and bottom-end supports resting at 760.25 and 754.25, respectively.  The S&P futures are currently trading at 771.25.

February 25th, 2009

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Choppy trade as shorts cover on dips

Ben Bernanke seemed to have revived the financial markets, at least temporarily, for the second consecutive day.  At one point the S&P was trading nearly 20 points into negative territory; however, details provided for “stress tests” and the granting of immediate access to further government support from the $700 billion bailout fund managed to turn stocks around in late session trade.

Bernanke clearly stated that there are no talks in regards to nationalizing the banks.  Accordingly, the Treasury Department announced that the government is prepared to purchase preferred shares of bank stock that are convertible into common shares.  They expect to do so at a discount of 10% of their price before February 9th.

Stress tests conducted by the government to ensure that the banks have enough capital to survive a downturn are expected to be completed by the end of April.  The results of the test will determine whether or not additional assistance is needed and will test their ability to survive even rougher conditions than they now face.

Investors seemed to enjoy the details of the plan, or at least the bears saw it as enough of a threat to cover short positions.  However, the indices are plagued with a “sell all rallies” mentality.  Until the attitude toward the markets change, this will prevent any sustainable gains.  That said, the only event that is capable of triggering such a dramatic change in sentiment is a large short squeeze.  Once the market reminds the bears that there are no “free lunches”, stability may return.

Today’s choppy trade and weak close has thrown off our technical analysis a bit.  There is still substantial risk of a short covering rally, thus the bears should avoid getting comfortable.  In fact, we see potential for over 800 in the S&P and 7,800 in the Dow.  However…Wednesday’s late day sell off may lead to another flush out before the rally can occur.  We like selling puts and or buying calls against sharp weakness.  If we do get a flush out of the longs and a spike in the VIX you may want to consider one by two ratio put spreads as an attempt to take advantage of the volatility.  The spread could be used for speculative bears or as a hedge against bullish positions.

* 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 -

February 18 - Short March S&P 660 puts at $8, looking for a quick rally to cover.

• Buy this back at $3 or better to lock in a profit of $250 minus commissions on a mini and $1,250 minus commission on a full sized contract.

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

——————-

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

www.CarleyGarnerTrading.com
www.DeCarleyTrading.com

*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.

S&P Daily Commentary for 2.24.09

The S&P futures retested 2008 lows on Monday as equities reacted negatively to the idea of the U.S. government taking a larger stake in Citigroup.  Even though the futures touched the critical 2008 lows briefly before recovering, it seems a drop below these levels may be inevitable.  The S&P futures are turning negative at the open after the U.S. released disappointing data concerning housing prices.  This development casts doubt on the overall effectiveness of the government’s new housing recovery plan.  With the U.S. government’s plans on the table concerning fiscal stimulus, the Obama Administration is running out of psychological tools to keep the market’s head above water.  Furthermore, with the U.S. benchmark interest rate near 0%, the Treasury is about out of tricks in terms of monetary policy shocks.  It seems the only option the Treasury has is to proceed with quantitative easing.  However, this would be an unprecedented step for the U.S., and the government will do whatever it can to avoid traveling this route.  Hence, the government may have to take a passive role for the meantime, and let reality dictate the path of markets until investors can begin to see the impact of the massive economic initiatives.  With credit markets still at abnormal levels and global confidence and consumption rates on the decline, corporate profits should continue to get squeezed while economic data weakens.  Later today the U.S. will release CB Consumer Confidence data followed by Fed Chairman Bernanke addressing the general public.  All investors will be paying close attention to Bernanke’s tone to try and decipher his opinion of the U.S. economy at present.  Correlation wise, the 30 Year Treasury Bond futures are breaking out to the upside while Gold is still knocking at the psychological $1000/oz level.  Furthermore, Crude futures continue to be held down by their debilitating downtrend.  Therefore, the S&P’s correlations provide little good news as far as the bulls are concerned.  Meanwhile, the S&P futures are well below our 3rd tier downtrend line and the 800 level and uptrend line are a distant memory.  Therefore, even though we may see a small bounce today due to oversold conditions, we maintain our negative stance on the S&P futures.  Fundamentally, we find resistances of 754.25, 760.25, 766.25, and 773.5.  To the downside, we see supports of 747.25 and 739.75.  The S&P futures are currently trading at 752.00.