**See my monthly column, Futures for You, in Stocks and Commodities Magazine**
The major stock indices benefited greatly from plunging crude oil and natural gas futures. While yesterday's buying frenzy carried over into the open of trade on Thursday, there were definite moments of weakness. In fact, at one point it seemed as though we were destined for negative territory and perhaps much lower. It was a well timed break of major support levels in the energy complex that saved the day for the bulls.
In previous weeks I pointed out that earnings may be the saving grace of this market; while Wall Street isn't out of the woods yet, stocks have enjoyed the earnings season thus far. Keep in mind that markets tend to over compensate for news, whether bearish or bullish, and that seems to be the best explanation of the recent bear market action. I am not denying that there are a lot of negatives circulating the markets and the economy but the market simply dropped too far too fast. Investors were behaving as if the world as we knew it would be coming to an end, anything less than devastatingly low earnings were be enough to aid a short covering rally.
It is too early to tell whether the buying witnessed in the previous two trading sessions will extend into something more than a mere short covering rally. In fact, the Dow will find significant resistance near 14,000. Action in the next two to three sessions could "make or break" the index. NASDAQ futures will also be pressured as it approaches 1875.
Helping the Dow partially recover from several weeks of abuse, JP Morgan, United Technologies and Coca Cola Co. released optimistic comments regarding their operation's ability to carry on despite a challenging environment.
If you are flat the market, I suggest staying that way. For those holding the trades recommended below now is a good time to take a step back and look at things objectively and without emotion. We now know that it wasn't necessary to roll the July puts into August, but it was the prudent thing to do. In light of the dip to 10,800 it was the right thing to do despite the ultimate outcome. Sit tight for now, I am hoping for a much more favorable market conditions for option sellers in the coming weeks.
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 Recommendations...
**There is unlimited risk in naked option selling and futures trading
Position Trade -
· June 18th - I recommended selling the Dow (big or mini) 11,000 puts for 50 ob
- Place an order to buy this option back for 10 ticks or better
- July 14th - Clients were instructed to roll out the position by buying back the July 11,000 near 100 points and selling the August 10,500 put for a credit of about 130. If you haven't done this, it is likely a good idea to do so. Contact me if you have questions.
· June 27th - Buy 1 September 109 put and sell 2 103 puts, this can be done near even money. The trade makes something with the market anywhere between 10,900 and 9,700 at expiration with the max benefit being at 10,300 ($3000 in the mini and twice that much for the big). The risk is unlimited below 9,700!
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 Recommendation
**There is unlimited risk in naked option selling and futures trading
Position Trade -
June 30th - If you followed our recommendation you would be long a NASDAQ from 1850.
· July 8th - I see the potential for a rally to 1867; place a limit order to take profits at this level
- This is not for the faint of heart, if you are uncomfortable...get out.
- This trade hasn't worked out from the start; please note that the limit order to exit has been moved out considerably. I would be happy to see a "scratch" on this one.
- July 17 - Had you followed the recommendations made on this newsletter you would have been filled at 1867 today with a profit of 17 points ($340 in a mini and $1,700 in a full sized before commissions and fees). Despite a profit, it wasn't worth the risk or the heartache, but it is what it is....
Carley Garner
Research Analyst
There is a 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. Alaron Trading Corp. its officers and directors may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. 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.
