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TEN Exclusive: Options Update – 6/6/10

 Traders celebrated when May ended and were optimistic that June would be much better.    Did you realize that during the whole month of May we did not see back-to-back positive days for the S&P 500 Index? Last Wednesday and Thursday –when the SPX was up 2.58% and 0.41% respectively — were the first consecutive up days since the last two days in April. Investors thought that we had worked our back from the “flash crash” and that staying above 10,000 on the Dow was a given.  We ended the week at 9,931.

The market was bedeviled this past week by continuing worries about European debt (add Hungary to the list of usual suspects); new worries about a slowdown in economic activity in China; and BP’s hapless efforts to end the catastrophic oil spill in the Gulf (although progress was reported on that front toward the end of the week). Just to stir the pot a little, two influential Federal Reserve officials publicly lobbied Thursday for higher interest rates. Then came Friday’s knockout punch: a hugely disappointing report on new private sector employment.

The Dow had tumbled 323 points, or 3.2%. The blue-chip barometer ended beneath the 10,000 level for only the third time since November 2009, declining 2% for the week. For the week, the S&P 500 Index shed 2.3%, while the tech-rich Nasdaq Composite lost 1.7%.

On the bright side, the SPX remains above its February low at 1,045.  However, it won’t take much to push the index below this key support level, and a break below this level could lead to a steep decline in the markets.

The momentum favors the bears but it won’t take much to spark a quick and furious reversal.  If we get that spark, this market will fly higher.  That said, it is best to remain overly cautious and keep in mind that cash is a position too.  There is no need to chase this market.

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