carleygarner
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April 9th, 2010
Buyers come back to equities
After a miraculous recovery from what could have been a doom and gloom scenario for the equity markets in yesterday's trade, the major indices were able to add to gains ahead of earnings.
The bulls are hoping that solid earnings will be the catalyst that the market needs to continue the upward momentum; and bears believe that the market will struggle to hold "frothy" levels even if earnings meet expectations. Historically, the markets have a habit of rallying ahead of earnings only to give much of the gains back once the news becomes a reality.
Many analysts have struggled to come to terms with the fact that the stock rally has overcome questionable fundamentals but there are some glaring technical and mechanical arguments for lower prices (we know, we know...we have been saying this for some time). Many oscillators, particularly in the Russell, are showing obvious examples of divergence (new highs on the chart but not in the indicator). Also, as of last week's Commitment of Traders measurement small speculators had become net long the e-mini S&P for the first time since we can remember (well over a year). In the meantime, the large speculators have gone from long to short. This doesn't necessarily mean that the highs are in but it does suggest that a temporary trend reversal could be in the cards. After all, small specs are often lat to the party (they tend to be buyers after the move has exhausted itself). The large speculators aren't always right, but they have a substantial amount of capital backing their bets and that says something about their skills.
The S&P appears to be looking a bit higher from here, our upside projection for "mutual fund" Monday will be 1195ish. However, this rally appears to be unhealthy in the lack of digestive days and this can't last forever. Some of our CME sources note that they haven't seen this type of one sided trade since the tech bubble....and we all know how that ended. We aren't necessarily looking for a crash but the markets are in need of a pullback.
Similar technical levels in the NASDAQ and Russell are 1995 and 707, respectively.
* 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 be 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 -
February 19 - Our clients were advised to sell the April 1165 calls for about $7.50, fills were coming in near $7.25 and a handful at $7.50.
March 5 - Clients with ample margin and guts, were recommended to add to this position by selling the 1165 calls for $9.50.
March16 - Clients were advised to roll half of their short call position into the April 1185/1100 strangle.
March 17 - Clients were advised to roll the remaining 1165 calls into the May 1190 calls to give the market some breathing room.
March 31 - Clients were advised to buy back the short 1100 puts for $1.75 in premium
April 1 - Clients were recommended to roll any existing April 1185 calls into the May 1215 calls for a small credit (about .50). This moves the risk away from the market and lowers the delta considerably.
Russell Futures and Options Trading Recommendations
**There is unlimited risk in naked option selling and futures trading
Position Trade -
March 9 - Sell 1 June mini Russell @ 682 OB
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 -
March 3 - Sell 1 e-mini NASDAQ at 1878 or better
Carley Garner
Senior Analyst / Commodity Broker
*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.
Buyers come back to equities
After a miraculous recovery from what could have been a doom and gloom scenario for the equity markets in yesterday's trade, the major indices were able to add to gains ahead of earnings.
The bulls are hoping that solid earnings will be the catalyst that the market needs to continue the upward momentum; and bears believe that the market will struggle to hold "frothy" levels even if earnings meet expectations. Historically, the markets have a habit of rallying ahead of earnings only to give much of the gains back once the news becomes a reality.
Many analysts have struggled to come to terms with the fact that the stock rally has overcome questionable fundamentals but there are some glaring technical and mechanical arguments for lower prices (we know, we know...we have been saying this for some time). Many oscillators, particularly in the Russell, are showing obvious examples of divergence (new highs on the chart but not in the indicator). Also, as of last week's Commitment of Traders measurement small speculators had become net long the e-mini S&P for the first time since we can remember (well over a year). In the meantime, the large speculators have gone from long to short. This doesn't necessarily mean that the highs are in but it does suggest that a temporary trend reversal could be in the cards. After all, small specs are often lat to the party (they tend to be buyers after the move has exhausted itself). The large speculators aren't always right, but they have a substantial amount of capital backing their bets and that says something about their skills.
The S&P appears to be looking a bit higher from here, our upside projection for "mutual fund" Monday will be 1195ish. However, this rally appears to be unhealthy in the lack of digestive days and this can't last forever. Some of our CME sources note that they haven't seen this type of one sided trade since the tech bubble....and we all know how that ended. We aren't necessarily looking for a crash but the markets are in need of a pullback.
Similar technical levels in the NASDAQ and Russell are 1995 and 707, respectively.
* 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 be 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 -
February 19 - Our clients were advised to sell the April 1165 calls for about $7.50, fills were coming in near $7.25 and a handful at $7.50.
March 5 - Clients with ample margin and guts, were recommended to add to this position by selling the 1165 calls for $9.50.
March16 - Clients were advised to roll half of their short call position into the April 1185/1100 strangle.
March 17 - Clients were advised to roll the remaining 1165 calls into the May 1190 calls to give the market some breathing room.
March 31 - Clients were advised to buy back the short 1100 puts for $1.75 in premium
April 1 - Clients were recommended to roll any existing April 1185 calls into the May 1215 calls for a small credit (about .50). This moves the risk away from the market and lowers the delta considerably.
Russell Futures and Options Trading Recommendations
**There is unlimited risk in naked option selling and futures trading
Position Trade -
March 9 - Sell 1 June mini Russell @ 682 OB
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 -
March 3 - Sell 1 e-mini NASDAQ at 1878 or better
Carley Garner
Senior Analyst / Commodity Broker
*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.
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