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The Dow Futures Report

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Equities Run, but will it Last?

Wed, May 28 2008, 07:25 GMT
by Carley Garner

Alaron

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

Stock investors found a reason to buy, or at least traders found a reason to cover short positions. The Dow managed an impressive rally on crumbling crude oil prices and a glimmer of hope in the housing market.

Crude oil dropped to settle near an eight day low, off nearly $4 per barrel on the day. While it is still too early to call a top in crude oil, there are a few things supporting the theory. The seasonality of this market tends to support lower prices from this point on. According to my research, it seems as though crude futures tend to find a top near the end of May to beginning of June. Additionally, energy prices have a habit of ending a long run with a “blow off top”. The $3 plus one day rally last week may have been a textbook example. If that was in fact the seasonal high in crude oil prices, stocks may begin to look attractive once again.

According to the Commerce Department, sales of new homes rose 3.3% in April. This was welcomed following a March plunge of 11%. The previous month’s reading brought new home sales to their slowest pace seen since 1991.

The Dow’s advance seems to simply be an oversold bounce at this point; tomorrow’s trade may be more telling. The Dow lost nearly 4% last week and was the worst showing since February. I see major resistance near 12,825 and support sits at 12,458.

Following the recent drop, I am growing bullish once again but recognize that we may be in store for an increase in volatility. I am recommending that my clients work orders to sell June Dow 117 puts for 50 points or better. This can be done with either a mini or full sized contract.

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 27th - I am recommending that my clients work orders to sell June Dow 117 puts for 50 points or better. This can be done with either a mini or full sized contract. Contact me if you have questions.
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  Wed, May 28 2008, 07:32 GMT