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New highs on Monday for stock index futures, but then what?

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New highs on Monday for stock index futures, but then what?
November 4th, 2010
Whether the current rally is justified, artificial, or any other adjective the nay-sayers have thrown at it, it is for REAL.  We aren't surprise to see the S&P at current levels, but we are surprised that it has made it here without a correction...or even a pullback.  In this newsletter we have been claiming any pullback would be a buying opportunity, but it appears as though the patient longs were simply left out of this one as most (including us) thought that a deeper dip would be likely before seeing prices well into the 1200's. 
Monday is the Fed's last scheduled POMO (Permanent Open Market Operations) day and it is also (of course) a Monday, which have seen buying interest more often than not.  The large short interest among large traders could also start to come into play as they are likely starting to feel the heat and might look to throw in the towel and cover.  Also, the monthly charts are pointing toward 1240ish, and the mid 1230's marks the 62% retracement of the entire plunge lower.  With all of this in mind, it seems as though stock index futures are setting up for new highs on Monday. 
On the other hand, the market has grown tremendously overbought and remains vulnerable.  Stock index futures are now trading above the April highs, and I doubt any of us have forgotten about the May 6th flash crash and the subsequent selling pressure across the board. 
If the short squeeze continues, as we think it might, look for the S&P to trade in the mid to low 1230's on Monday, the NASDAQ could see 2210ish and the Russell might be going for its April highs in the mid-740's.  However, it will be difficult for the market to move much above these technical areas in the short-term.
Puts are getting cheap!  The December 1150 puts settled near $8 and might be trading near $6.  This option was trading in the high $20's on October 27th!  If you want to get closer to the action, it might be possible to buy the 1170's for about $9. 
Don't forget the definition of a bull market, "A random market movement causing an investor to mistake himself for a financial genius."
* 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 factored into current prices, any references to such does not indicate future market action.
Please note: An e-mini S&P and e-mini NASDAQ chart are used because they 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.
Futures and Options Trading Recommendations
**There is unlimited risk in naked option selling and futures trading
Position Trade -
Carley Garner
Senior Analyst / Commodity Broker
DeCarley Trading
Local : 702-947-0701

*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.