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June 15th, 2010

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Yesterday's late sellers were today's early buyers

Monday's horrendous close had the bulls nervous and the bears salivating, but despite a lack of positive news or obvious catalyst Tuesday belonged to the bulls. 

I recently read an internet blog that shared the same pessimistic reality that I have spoken about in this newsletter from time to time.  It stated that based on the open interest of calls and puts in the SPY (the ETFy version of the S&P 500 index) the S&P would need to be a little above 1100 at expiration to cause the most pain to the most speculators and this is what the blogger expects to happen.

Unfortunately, I agree; I believe the markets have a tendency to cause the most amount of pain to the most people.  Don't forget that beating the market is a tough game...greedy investors chased Madoff and his 12 to 13% annual track record straight into prison, so expecting "easy" money is unrealistic.  I am not saying that profitable and lucrative trading isn't possible, but it is my job to point out that as a trader it is important to be able to accept the good with the bad.  That said, although our conclusions were made via different analysis relative to this blogger, the outcome is the same. 

We have been looking for the S&P to trade into the 1120's and maybe as high as 1130.  Today's test of the 200-day moving average (near 1108) puts us well on our way.  However, President Obama will be addressing the country tonight and he has been called by some un-named CME floor traders "Mr. Sell Signal".  Therefore, if you have caught this up-move don't get greedy holding out for 1130...look to tighten stops and take some risk off of the table.  Assuming we break 1108, the next resistance will be 1117 and then again near 1127.  There are likely many buy stops above and this should translate into an extension of the rally but he bulls shouldn't get comfortable.

If you are trading the NASDAQ, resistance lies near 1905 and again near 1930. 

Resistance in the Russell continues to be 661 but we think that 675 will be seen sooner rather than later.

* 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.  Charts provided by Track 'n Trade, Gecko software.

**Seasonality is already factored into current prices, any references to such does not indicate future market action.

Please note: A mini S&P chart is used because it is better for charting purposes, but trade recommendations can be applied to either the full-sized S&P or the mini.  Unless otherwise noted, profit and loss will be based on the mini version.

S&P 500 Futures and Options Trading Recommendations

**There is unlimited risk in naked option selling and futures trading

Position Trade –

May 10 - After several adjustments, and challenging market conditions, our clients have been recommended to hold the short June 1100 puts.  We are underwater considerably on the position but hope to be able to recoup as the market stabilizes.

May 20th - Clients were recommended to roll the June 1100's into the June 970 and the July 970.  Doing so enabled them to recoup most of the premium, while giving the market some breathing room and keeping some exposure in the faster eroding June options.  However, for this move to work we need lower volatility!

May 26th - Clients were advised to buy back the June 970 puts at a profit, we will hold the July's for now. 

June 12 - Clients were advised to buy back the remaining July 970 puts for about $10, to lock in a profit on that leg of the trade of about  $1000.  It feels good to be on the sidelines

Russell 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

*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.