October 8th, 2008
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Global rate cut delivered, lackluster rally.
The global market "meltdown" continued in overnight trade regardless of actual market fundamentals, technically oversold conditions and seasonally supportive tendencies. This "no end in sight" decline has worn on the bulls. Earnings season has been swept under the rug in light of much bigger and better news stories, but it may be the market's last hope at a recovery...even if it is temporary.
We are all well aware of the carnage and have likely taken on a whole new outlook on the markets and in trading in general. Luckily, what we are seeing is an event that has historically only occurred about once a decade. That doesn't make either of us feel better about it today, but it does remind us that trading is about patterns and markets are about cycles. Just as the bear cycle has consumed our economy there will be days of exuberance and excess at some point in the future.
Traders and investors can learn a lot by history if they are capable of stepping out of the current environment and looking at things objectively (this is much easier said than done).
According to the Stock Trader's Almanac, October is known as the jinx month due to crashes in 1929, 1987 and the 554 point drop in the Dow on October 27, 1997. The market also suffered large losses during the October's of 1978 and 1979 and don't forget about Friday the 13th in 1989. I guess we should have seen this coming...
However, October has also been dubbed the "Bear Killer" by the Stock Trader's Almanac. The month of October has bred reversals in the following post World War II markets: 1946,1957,1960,1962,1966,1974,1987,1990,1998, 2001 and 2002.
October is also given credit for the end of the "worst six months of the market" and has been the best performing month for both the Dow and the S&P in the past 10 years.
Based on historical standards, October is a great time to be a stock buyer. However, buyers must have confidence in the system and as of today that is something that seems to be holding the markets back.
The markets and its participants are trading on emotion rather than logic and this always complicates things. However, history doesn't lie and it tends to repeat itself. Let's see what happens.....I see support in the S&P near 969 and resistance near 1025. Likewise, resistance in the Dow should be found at 9,663 and support near 9,218. The NASDAQ must get above and hold 1395, while support lies at 1332 and 1289.
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 Futures and Options Trade Recommendations
**There is unlimited risk in naked option selling and futures trading
Position Trade -
September 5 - Try selling the September 1160 put for $4 or better, it will take continued weakness to get filled. (See adjustments below)
September 9 - If you were trading the mini version, you should have been filled on this today. Those trading the full sized contract likely were not filled and should keep the order working in tomorrow's session. We are giving the market plenty of room to move, but this must be handled with care.
September 11 - I recommend placing an order to buy this option back for a $1 in premium, this would be a profit of $150 on each mini and $750 on each full sized before commissions and fees and assuming that you are able to get filled at the prices noted.
- This option traded at $1, but didn't go through it. You likely weren't filled, keep the order working on Monday but don't get greedy. If it costs a little more, take your profit and run.
- Hopefully you exited this trade on Friday, if so you may want to resell this option. If you are still holding on, look to exit on the next significant bounce. Preferably at $1.50 or less. Contact me for guidance.
- Clients were advised to roll this trade into the October options by buying back the Sept. 1160 put and selling the Oct. 1060. At the time this could have been done at a debit of $1.25. It is better to be safe than sorry!
- Place an order to buy back the 1060 put for $3.00, let's get this over with!
September 18 - If you prefer the big board, based on today's settlements it may be possible to buy the November 1160 put and sell 2 of the 1080's for near even money. Assuming an even money fill, this trade makes something from 1160 to 1000. The maximum profit of $20,000 occurs if the market is at 1080 at expiration, the risk is unlimited (equivalent to being long a futures) below 1000.
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 Futures and Options Trade Recommendations
**There is unlimited risk in naked option selling and futures trading
Position Trade -
September 5 - Sell the September Dow 10,600 puts for 50 or better. This can be done in the mini or the full sized. Call me for additional guidance (see adjustments below).
- September 15 - This order should have been filled today. Look to buy this back for 10 or better! Don't get greedy, if we get a large bounce take a profit. There may be a chance to resell it.
- September 18 - Clients were advised to roll into the next option month by buying back the 106 puts and selling the 97 puts, at the time this could have been done for a debit of 2 ticks. We wanted out of this market's way!
- You should have an order to buy these back at 20.
September 18 - Take advantage of the volatility through ratio put spreads!! Premiums are "fat", you can buy an October Dow 10,700 put and sell 2 of the 10,200 puts for close to even money. Assuming an even money fill, this trade pays off something above 9,700!! The maximum profit is $5,000 on the full sized contract and $2,500 on a mini and occurs if the market is trading at 10,200 at expiration. 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 Futures and Options Trade Recommendations
**There is unlimited risk in naked option selling and futures trading
Swing Trade -
Flat
Position Trade -
Flat
Carley Garner
Senior Analyst / Commodity Broker
DeCarley Trading
1-866-790-TRADE
Local : 702-947-0701
http://www.decarleytrading.com/
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.
