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The Stock Index Report

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Stocks up pre− Fed but fail to hold gains post−Fed

Wed, Nov 4 2009, 23:25 GMT
by Carley Garner

DeCarley Trading

All eyes were on the Fed in early morning trade. Uncharacteristically, the financial markets experienced a notable amount of volatility in pre-announcement trade. In more typical circumstances, the markets remain range bound into the interest rate decision; this time around the S&P rallied sharply ahead of the news.

The Fed expectedly left rates unchanged but some argue that their policy and their language contradict each other. According to the accompanying commentary, the U.S. economy has picked up; yet, their pledge to hold rates at record-low levels for an "extended period" suggest that there are still some reservations in their perception of the economy. As a result, stocks traders are a little uncertain of where to go from here. After all, low rates are good for the economy but if they are kept low because of underlying weakness (which is clearly the case) then it is hard to get overly excited. Accordingly, the major indices made their way back to unchanged by the close of trade.

It is not uncommon for trade to fade the initial reaction to a Fed announcement. In fact, that seems to be "the trade". Our friends from the floor reminded us (and our clients) of this earlier today http://www.youtube.com/watch?v=gntHQvbyoOk.

We have one event out of the way, but another one on tap. Friday's jobs numbers could very well determine the overall direction of equities. ADP's prediction of the report came in at 203,000 jobs lost which is a little worse that expectations for Friday's numbers are. Most analysts seem to be looking for draw of about 175,000 and an unemployment rate of 9.9%. A number in the 220's + might trigger another wave of selling and stop running. In that case, 1010 is possible in the December S&P. However, a number in line or better could result in a close above 1066. If this happens, 1100 becomes the upside target.

From a technical standpoint, the S&P fell slightly short of our upside target of 1066 and this is a bit troubling. Also, the Russell closed in negative territory...and that has been the market leader. The early morning bounce was enough to relieve the market from being oversold and leaves the indices vulnerable for a retest of the recent lows. That said, if we get it (or better yet, slightly new lows) we can't help but look higher from there.

If you are following our short put recommendations, our clients were finally filled on the recommended GTC order to buy back the November 960 puts for $3. This locks in a profit of $250 minus commissions per contract. If you like this style of trading, or would like ideas on how to get more aggressive with our recommendations...give us a call. You might also be interested in my book, "Commodity Options", which is available in all major bookstores.

For those that took the alternative recommendation to sell the December 900 puts, we are still holding this position but will be looking to buy it back shortly.


* 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 might be applied to either the full-sized or the mini versions. Unless otherwise noted, the mini version is used.


S&P 500 Futures and Options Trading Recommendations
**There is unlimited risk in naked option selling and futures trading

Position Trade -

October 28 - We recommended that our clients sell the November S&P 960 puts for $8. There were a few filled in the overnight trading session, but unfortunately the market turned without us. Those that were able to get a fill, were recommended to buy the option back at $3 to take a quick profit. We suspect that this order will get filled by tomorrow. If so, the trade locks in a quick $250 per contract before commissions and fees.
• November 4 - Our clients were filled on the recommended GTC order to buy back the November 960 puts for $3.

October 30 - Our clients were recommended to sell the December S&P 900 puts for about $8. Fills were coming in from $7.75 to $9.


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

Published on  Wed, Nov 4 2009, 23:37 GMT