Panic selling in equities followed by panicked buying
February 5th, 2010
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Panic selling in equities followed by panicked buying
After melting through 10,000 with ease, the Dow clawed back on the close to settle slightly above. The March Dow futures contract failed to reach the milestone but it is clear that there will be no free lunches for the bears.
There are no shortages of hedge fund blowups and many believe that it was the liquidation of leveraged commodity and stock positions that enabled such a dramatic fall from grace. At one point today, the S&P was approximately 60 points off of yesterday’s highs. We haven’t gotten to the capitulation seen in 2008 fueled by fund and small speculator margin calls and the subsequent liquidation but this has certainly been a reminder that complacency has no place in these markets.
Market psychology has changed, most traders have adopted a “sell rally” policy but that doesn’t mean that the market will go straight down. In fact, there were rumors of a large and well known bank buying a total of 600 S&P futures late on Friday. Assuming a value of 1050 in the March contract, that is about $262,500 per contract…I’ll let you do the math.
In the January issue of Futures Magazine, we were quoted several times in reference to our opinion of “Hot Markets of 2010″. In the article we predicted a large upside breakout in the U.S. dollar early in the year and later noted that such a move would put pressure on the metals and grains. In this newsletter, we have mentioned several times that a stronger dollar would be trouble for domestic stock indices. Unfortunately, we don’t always follow our own advice…If you are following our short put option recommendation, we are growing slightly anxious but are not yet uncomfortable. Despite spikes in volatility and put premium, we feel as though a relatively large bounce is looming and this will be just what we need to exit the position favorably. Luckily, as an option seller your timing and price speculation doesn’t have to be perfect!
Our weekly chart is pointing to 1020 in the S&P, but we think higher before lower. The last time around, the rally fell short of our targets…we will see how things pan out this time. We are looking for a rebound in the S&P to 1085 and possibly even a bit over 1100 if the news is supportive. If you are trading the Russell, similar levels are 604 and 615 and in the NASDAQ at 1773 and 1810.
On a lighter note… http://www.cnbc.com/id/15840232/?video=1405435640&play=1
* 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 be factored into current prices, any references to such does not indicate future market action.
Please note: A mini S&P chart is used because it is 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.
S&P 500 Futures and Options Trading Recommendations
**There is unlimited risk in naked option selling and futures trading
Position Trade -
January 21 – Our clients were advised to sell the March S&P 1000 puts today following the drop in an attempt to capture the market volatility in the put premium. Fills were coming in from $8 to $9.
Russell Futures and Options Trading Recommendations
**There is unlimited risk in naked option selling and futures trading
Position Trade -
Flat
Please note: A mini-NASDAQ chart is used because it is better for charting purposes, trade recommendations will denote whether a mini or full sized contract should be used.
NASDAQ Futures and Options Trading Recommendations
**There is unlimited risk in naked option selling and futures trading
Position Trade -
January 27 – Buy 1 e-mini NASDAQ near 1781
- February 3 – Place an order to exit this trade at 1830 OB
Carley Garner
Senior Analyst / Commodity Broker
DeCarley Trading
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.
