Choppy Trade as Shorts Cover on Dips

Ben Bernanke seemed to have revived the financial markets, at least temporarily, for the second consecutive day. At one point the S&P was trading nearly 20 points into negative territory; however, details provided for “stress tests” and the granting of immediate access to further government support from the $700 billion bailout fund managed to turn stocks around in late session trade.
Bernanke clearly stated that there are no talks in regards to nationalizing the banks. Accordingly, the Treasury Department announced that the government is prepared to purchase preferred shares of bank stock that are convertible into common shares. They expect to do so at a discount of 10% of their price before February 9th.


Stress tests conducted by the government to ensure that the banks have enough capital to survive a downturn are expected to be completed by the end of April. The results of the test will determine whether or not additional assistance is needed and will test their ability to survive even rougher conditions than they now face.
Investors seemed to enjoy the details of the plan, or at least the bears saw it as enough of a threat to cover short positions. However, the indices are plagued with a “sell all rallies” mentality. Until the attitude toward the markets change, this will prevent any sustainable gains. That said, the only event that is capable of triggering such a dramatic change in sentiment is a large short squeeze. Once the market reminds the bears that there are no “free lunches”, stability may return.
Today’s choppy trade and weak close has thrown off our technical analysis a bit. There is still substantial risk of a short covering rally, thus the bears should avoid getting comfortable. In fact, we see potential for over 800 in the S&P and 7,800 in the Dow. However…Wednesday’s late day sell off may lead to another flush out before the rally can occur. We like selling puts and or buying calls against sharp weakness. If we do get a flush out of the longs and a spike in the VIX you may want to consider one by two ratio put spreads as an attempt to take advantage of the volatility. The spread could be used for speculative bears or as a hedge against bullish positions.
Please note: A mini S&P chart is used because it is better for charting purposes, but trade recommendations are based the full sized S&P unless otherwise noted.
Feb. 25 S&P
S&P 500 Futures and Options Trading Recommendations
**There is unlimited risk in naked option selling and futures trading
Position Trade –
February 18 – Short March S&P 660 puts at $8, looking for a quick rally to cover.
ยท Buy this back at $3 or better to lock in a profit of $250 minus commissions on a mini and $1,250 minus commission on a full sized contract.
Please note: A mini-sized Dow chart is used because it is better for charting purposes, but trade recommendations are based the full sized Dow unless otherwise noted.
Feb 25 DOW
Dow Jones 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.
Feb 25 Nasdaq
NASDAQ Futures and Options Trading Recommendations
**There is unlimited risk in naked option selling and futures trading
Position Trade –
Flat
Carley Garner
Senior Analyst / Commodity Broker
DeCarley Trading
cgarner@DeCarleyTrading.com
1-866-790-TRADE
Local : 702-947-0701
www.CarleyGarnerTrading.com
www.DeCarleyTrading.com
*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.

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