November 17th, 2008
See me in the latest issue of "Technical Analyst", Trading Volatility with the VIX
Volatile intra-day trade in stock indices, but few participants
Citigroup's announcement to cut more than 50,000 jobs, Moody's downgrades on Starbucks bonds and revenue warnings issued by Lowe's kept a cap on equity market buying. However, each dip into negative territory was moderate and met with buying pressure.
The National Association of Business Economists' poll of 50 professional forecasters revealed that the real GDP is expected to fall 2.6% in the fourth quarter and another 1.3% in the first quarter of 2009. The survey suggests that pessimism is growing at a swift pace. NABE President Chris Varvares stated, "Business economists became decidedly more negative on the economic outlook for the next several quarters as a result of the intensification of credit market stresses and evidence of spillover to the real economy."
After spending much of the weekend at the mall, it was obvious that retailers are desperate for sales and consumers are too frightened to take advantage of the opportunities. It is clear that it will take several months or years for the markets to work things out.
Another retest of the lows may be underway in the major indices. Friday's dramatically bearish close leads me to believe that the path of least resistance is lower in the near term. I see support in the S&P near 829 and of course near Thursday's low of 817. However, the market's resilient attempts to hold above 866 makes this a tougher call than it may otherwise be. Assuming another leg down in equities, the Dow should run into support near 8,000 and the NASDAQ at 1130. With that said, traders should be prepared for a very large "bear market bounce" as we approach option expiration. This means that the bears shouldn't get too comfortable and the bulls should be ready to pull the trigger.
The safest course of action is to buy deep out of the money calls in hopes of a sharp recovery. Don't underestimate the potential of the reversal. With market sentiment low and short sellers seemingly comfortable, when the tide turns it will be swift as the bears panic to get out and the bulls panic to get in. For example, a weekly chart of the S&P suggests that a typical market correction could bring prices as high as 1130 without compromising the bear market trend. Similar analysis points toward 10,400 in the Dow and 1600 in the NASDAQ. Naturally, it would take a considerable amount of time to reach such levels but it is important to realize that this is a possibility.
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 -
October 29 - Clients were advised to purchase the November mini S&P 700 puts, fills were at or near $6 or $300.
- November 7 - These are underwater, but not out of the question. Place an order to sell them at or near $15.
November 12 - Our clients were advised to buy the December e- mini S&P 500 1030 calls for $6 in premium or $300.
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
Swing 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.
