October 14, 2011
Sign up for our next FREE webinar with PFGBest, "Decoding the COT Report", click here!
Steam rolling stocks, but is there a brick wall ahead?
Most people I talk to are surprised by recent strength in the equity markets, but they probably shouldn't be. After all, this is the third time the market has managed to rally to this area following a massive sell-off to, or just below, 1100. That said, the pace of the run is impressive and even the bullish of the bulls probably weren't looking for such one-way trade.
Today's news was good, but it has been consistently decent for weeks...it just took the market some time to realize it. Luckily, for stock market bulls recent trade has finally incorporated domestic events (good earnings and stable economic data) but that doesn't meant European woes won't come back into play. In fact, things have been "too" quiet over there and things are bound to wind back up again. Accordingly, we have a feeling the December S&P futures will struggle to break through 1230ish (at least on this run). Similarly, look for the Russell future to run out of steam near 720ish.
While a bearish trade might be the best bet from noted levels, traders should refrain from becoming overly bullish. A normal pullback from technical resistance, could lead into another round of strong buying. After all, according to the "Commodity Trader's Almanac" the "S&P's" have shown a tendency to see major bottoms in October, kicking off what is dubbed the "Best Six Months". They go on to say that the best seasonal play is to be long the market on or about the 27th of October and hold until December 27th.
Our guess is that there were plenty of buy stops run in today's session, and there could be more on Monday. However, it doesn't seem like there are fresh longs coming in just yet...Intraday resistance is at 1221 (we are there!) and the next will be just over 1230. These are the areas the bears might benefit from establishing positions. It is a runaway market, so be careful!
The "magic" technical number in the NASDAQ is 2375 according to our sources, and that isn't too far from our figure. Look for a potential reversal here, but again...this is counter-trend so traders must be cautious. Good luck!
* 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 -
In other Markets...
9 - 6 - Some clients are holding synthetic puts in the 5-year note in which they are short December futures contracts and long December 123 call options. Depending on entry, total (limited) risk on the trade is between $700 to $800 and we have until late November for something to happen.
10-7 Clients were advised to sell a December 5-year note 121.50 put for about 24 ticks. This reduces the cost of the trade and hedges against a possible bounce during the holiday weekend.
10-11 Clients were recommended to offset the short 5-year note future and the short 121.50 put for a combined profit of about $900 before commissions and fees and dependent on exact entry and exit prices. However, losses on the original hedge (long 123 calls) diminish the profit. We are looking for a Treasury recovery to give us an opportunity to offset the long call at a much better price (smaller loss).
10-11 Clients were recommended to sell strangles in the November Euro (142/128 for conservative traders and 140/130 for aggressive traders), or December crude oil (98/67 for conservative traders and 96/70 for aggressive traders).
(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)
Senior Analyst / Commodity Broker
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.