December 1st, 2008
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Record-breaking stock rally ends abruptly.
After posting the best consecutive five trading days in 75 years, the major indices collapsed under pressure. The sudden turn in sentiment is leaving many to wonder if the holiday is over, or if the Santa Claus rally will save the markets. The bulls are likely taken back by the reversal but probably shouldn't be. If the markets are going trade higher in a healthy manner, it is necessary to see digestion. Without back and filling, it is like a house of cards that can be blown down at any moment.
The selling commenced on mixed news from retailers following Black Friday. Despite initial reports that the holiday shopping season was better than some had feared, there were also signs that Americans are reluctant to spend money. Meanwhile, weak ISM manufacturing and construction spending data added to the bearish sentiment. Mike Stanfield, chief executive of VSR Financial Services, "Unfortunately, two-thirds of the American economy is base on the spending of the American consumer." He added, "When the consumer pulls back, it's very hard for the economy to gain much traction."
Additionally, the National Bureau of Economic Research panel announced that the recession officially began in December of 2007. The NBER uses an alternative method to the conventional negative GDP in their research and claims it to be more "precise".
I came into the day expecting a pullback, but with overall high hopes. Today's trade had very little to preserve my inner bull. In fact, another flush may be underway if the indices can't hold Wednesday's lows. At this point, I guess you could say that I am "on the fence" but maintaining a slightly higher bias. Assuming that the 50% retracement of the move higher holds, we should see another run at intermediate term resistance at 8,590 in the Dow, 880 in the S&P and 1196 in the NASDAQ. Failure at current levels could translate into another retest of the lows.
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 -
November 12 - Our clients were advised to buy the December e- mini S&P 500 1030 calls for $6 in premium or $300.
November 19 - If you are willing to take on the risk, the premium is looking attractive in puts. I like selling the December e-mini 575 put for $10 or better. This is equivalent to $500 and has a breakeven point of 570. Risk is unlimited below 570.
- This would have been filled on Friday, we recommended buying it back for $3 or less on Monday (you should still be able to get this price or better tomorrow). Assuming a fill at $10 to get in and $3 to get out, the profit would be $350 per contract before commissions and fees.
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 -
November 18 - There is a lot of premium in the puts, it is scary but selling seems to be a good call. I like selling the December mini- Dow 6000 puts for 100 or better. It will take additional weakness to get this filled.
- This would have been filled late last week.
- Place an order to buy this option back for 30 or better (don 't get greedy, if you can get out for a little more you should take it).
- You should be out of this with a nice profit!!
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.
