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Buy the stock index futures dip, or run for cover?

July 28th, 2011
 
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Buy the stock index futures dip, or run for cover?
 
Bargain hunters, profit taking by the bears, and a little bit of short squeezing of yesterday's late sellers triggered an early morning rally.  However, as the day wore on and traders were reminded of the looming debt fiasco, stock index futures faded gains. 
 
I think I speak for all of us when I say, enough already.  We'd all like to be able to move on with our lives and our trading...hopefully, a resolution will come along sooner rather than later.  Perhaps something will materialize in the next 24 hours but I suspect we will be in the same situation come Monday morning. 
 
A republican sponsored reduction plan will be headed to a Congressional vote this evening and is expected to pass, but at a small margin of victory.  However, as we know, passing the house isn't enough and Senate Majority leader Harry Reid has already claimed the Senate will defeat the bill. 
 
If you are interested in seeing what all of the fuss is about, check out this link:
 
Constant reminders of the implications of default are flooding business news stations and pessimism seems to be filling the air.  However, we remain cautiously optimistic and looking for moderately better levels to be bullish.  In our opinion, it isn't going to take a complete resolution of the U.S. debt to please the markets, just a temporary kick the can down the road bill. 
Look for support in the S&P from 1291 to 1288ish, below that would could be looking at a quick probe to the mid to low 1270's.  That said, we'd rather be a buyer on dips that try to sell a market that has already "been sold" ahead of an event that has a probability of favoring the bulls.
 
If you are trading the Russell, it is far more extended than the S&P and could be setting up for a dramatic snap back.  If you are short this market, we recommend you take extreme caution!  Near term support in the Russell is near 788ish. 

 
* 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.  
 
**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 -  
 
July 7 - Clients were advised to sell the August 1385 calls in the e-mini S&P for $8.00 or better.  Fills were reported between $8.00 and $9.00. 
 
July 11 - Clients were advised to take a quick profit on their short 1385 calls near 3.70, fills were reported as low as 3.15.  This leaves a per contract profit before transaction costs of about $215 to $280ish, depending on fills. 
 
In other markets....
 
July 11 - Clients were recommended to sell the August Euro 132 puts for about 28 ticks in premium, or $350.
 
July 11 - Clients were recommended to sell the August Euro 132 puts for about 28 ticks in premium, or $350.
 
July 12 - Clients were recommended to sell the August Yen 129.50 call for about 28 ticks ($350).
 
July 18 - Clients were advised to sell the August gold 1540 calls near about $5.00.
 
July 19 - Clients were recommended to lock in a profit on the Short Euro calls, fills were coming in at 10 and 11.  Assuming entry at 28 and exit at 10, profit before commission was $225 per contract.
 
July 19 - Clients were advised to buy back the 1540 calls (which were an "add-on" to our original bearish stance) near 3.30 to lock in a quick profit. 
 
July 19 - Clients were recommended to buy back any 1610 August gold calls and then sell an August 1630 call and a September 1700 call to replace them.  This was being done at a credit of $100 per contract. 
 
July 20 - Clients were advised to buy back the August 1630 call at a quick profit of about $300 before commissions and fees on Wednesday morning.
 
July 27 - Clients were advised to add on to the short Yen call position by Selling a September 136 call for about 35.
 
 
(Our clients receive short option trading ideas in other markets such as gold, crude oil, corn, soybeans, Euro, Yen, and more.  Email us for more information)
 
 
Carley Garner
Senior Analyst / Commodity Broker
DeCarley Trading
cgarner@DeCarleyTrading.com
1-866-790-TRADE
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.