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The Dow Futures Report

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Rough Day at the Office for the Bulls

Thu, May 22 2008, 12:07 GMT
by Carley Garner

Alaron

**Be sure to see my monthly column “Futures for You” in Stocks and Commodities!!!

A crude oil rally enticed profit taking in equities but it was the FOMC minutes that broke the back of the market later in the day. This marks two consecutive massive losing days for the Dow and has definitely taken the wind out of the sails of many bulls. Despite the carnage, the uptrend remains in tact for now.

At the time of this report, crude oil futures were continuing to make new highs and break records in the aftermarket. The July contract traded above $134 to post a gain of $5 per barrel on the day. I have always said that crude needed a blow off top in order to exhaust the rally and I think that we may be seeing it. Additionally, one of my favorite barometers of a market top is a sudden influx of phone calls and “walk-ins” looking to get into a market that has already had a tremendous rally. Several never before commodity traders seem to be rushing to open an account and spend absorbent amounts of money on crude oil calls…I think the top is near.

It was a day of mixed emotions for me. If you follow this newsletter you know that we recommended to sell calls against the rally on Monday and were happy to be able to buy them back at a healthy profit today. I had also recommended shorting the Nasdaq at 2035 which turned out to be a beautiful entry point. Unfortunately, despite my better judgment and pledges to never do it again I published the stop order. Miraculously, the market rallied nearly 15 points on the open to hit the stop price only to turn around on a dime and end the day much (much) lower. I am not bitter; this is the risk we take in trading but my clients cannot afford for me to publish stops on this report as it seems to have an adverse effect on their trading accounts.

I would like to begin looking for short puts…but there may be some room on the downside so I will be patient.

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 Recommendations...

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

Position Trade –
May 19th – If you followed my recommendation you would have sold the Dow 135 call today for 50 or better (this can be done with the mini contract).

• · May 20th – Buy this option back for 10 ticks or better to take a quick profit.
• * o May 21st – You should have been filled today at 10 points, this is a profit of $200 on the mini and $400 on the full sized contract before commissions and fees!!

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 Recommendation

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

Position Trade –
May 15 – Had you followed my recommendation you would be short a mini future from 2035…no stops recommended for now. So far so good...call me for guidance.

• · May 20 – You may have opted to liquidate this position on the spike low today, but if you are still in put a limit order to take a profit at 1977 and a stop order at 2016 to lock in a profit.
  * o May 21st – If you placed a stop at 2016 you would have been liquidated before the drop. Depressing, but still profitable by about $380 before commissions and fees!!

Published on  Thu, May 22 2008, 12:14 GMT