January 5, 2012
Part 2 of our discussion on the COT Report in Stocks & Commodities Magazine: http://traders.com/index.php/sac-magazine/current-contents/q-a-a/futures-for-you/873-cot-reportable-or-non
Fade a payroll rally?
Say what you want about Warren Buffet, but there are two facts that can't be argued:
1. He has made more money in his lifetime than most (or all?) of his critics combined.
2. The man has a great sense of humor. I've quoted him countless times throughout my books and newsletters and it never gets old (at least to me it doesn't). I thought you might enjoy this, I know I did (he is the one dressed as Axl Rose) : http://www.youtube.com/watch?v=V5oYYjJihh4
Stocks posted another day of no progress as intraday volatility eventually settled near unchanged on the session. It appears as though shorts second guessed their stance following ADP's prediction of 325,000 new jobs and spent the remainder of the day covering positions.
Don't forget that Martin Luther King day is quickly approaching (January 16th). The market seems to have a bit of a curse going into the holiday and particularly on the holiday itself (futures are open but cash market closed). Accordingly, we favor the idea of selling rallies for now.
We've mentioned in this newsletter before that when a market is trading at a relative extreme (as measured by the current trading range) going into a large announcement, it often sets the stage for a trend reversal (or at least temporary corrective trade).
The S&P appears to be ripe for such a price pattern. We are currently near the highest price seen since October and are pressing up against levels that have acted as significant resistance areas. Translation: buy stops above. If tomorrow's non-farm payroll report shows a figure near or above 200,000 jobs added (both private and public) we could easily see stop propelled rally. If see, this could offer the bears a chance to get in at relatively low risk levels (extended pricing near resistance). We are looking for resistance near 1286 and then again near 1295ish...if you are a bear, be ready to act at or near these levels.
* 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 -
1-3 - Clients were recommended to sell the February S&P 1340 calls for about $8.00 ($400 in the mini contract). We are looking for the market to digest or pullback its recent rally...but prefer to give it room to breathe.
In other Markets...
12-29 - Clients were advised to sell the March crude 122 call and the 78 put for a combined premium of about $1,000. These options have 49 days to expiration and we believe time value erosion will be most noticeable from 45 to 28 days.
1-3 - Clients were advised to sell the February 123/136.50 Euro strangles for about $700 in premium (56 ticks). These options have 32 days to expiration and are vulnerable to accelerated premium erosion in the absence of a significant change in market fundamentals.
1-5- Clients were advised to buy back the short 136.50 calls in the Euro for about 10 ticks to lock in a quick profit ranging from $200 to $240 (depending on fill prices on the way in and out). We'll look for a place to buy back the put in the coming days.
(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.