The S&P just had its worst January ever falling -8.6%.  If you have listened to this blog at all since it began, we have been calling for lower and lower prices punctuated by brief trading rallies.  This will continue throughout 2009.  Use all rallies to raise cash.  If you insist on being long, use cash secured puts in quality stocks like WMT, XOM, MCD, and PG, basically stocks that have a good probability of being in business in 5 years.  At some point there will be a catalyst to stop this spiral, but it is nowhere on the horizon.  The government is doing everything in its powers to stop the normal cycle of business, as they should.  I still love the fact that Barrons called for an increase of 18% for this year.  Good luck with that.  I do think this bear market will be very close to the early 70′s with a fat tail probability of disaster.  If that’s the case, we only have about another 10%-15% lower before we can call it.  I would absolutely watch the dollar.  Its had a nice run here thanks to its reserve currency of the world status, but if it gets back on its decline, we could actually fall another 15% -25%.

BA

The stock market continued to find support at levels beginning with 8 this week, 800 for the SP 500 and 8,000 for the DJIA. Traders tried to turn that level into resistance on Inauguration Day by greeting the new president with a closing 7 handle on the DJIA.  That did not last long as the markets opened up the following day, but it went right back down to test that support level again on Friday before bouncing up to close in the middle of this week’s trading range.

The problem with this consolidation is that it is at a lower level than we had seen in the previous month.

Credit spreads continue to look like the way to approach this indecisive market.

JD

The Dow has had a 250 point swing during the electronic session (so far).  Last night, the Dow was +130 and now it is -100.  The market will not like the RBS news.  RBS is currently -50% on the news of a much larger than expected (and record) 42 billion dollar loss.

More importantly, interest rates are not doing what would be expected.  Yields are screaming higher at the moment.  I think what could be happening(and lets hope not) is that the Fed is starting to lose credibility.  I think the market is starting to realize that the quantitative easing that the Fed has been swinging over investors heads to drive long rates lower is just that, hollow promises.  How can the largest debtor nation in the world, and therefore the largest issuer of bonds, also buy the same bonds back?  All markets close at 1:00 Eastern.

BA

Just when you thought investors might be ready to throw in the towel once again, it did find some support at the levels I suggested in my last post. The DJIA held support at 8,000 and the SP 500 held support at 815. The market seems to be treading water while it waits to see if there is just one more shoe to drop in the financial crisis.

Credit spreads may be the way to go for the February options expiration. For example, Sell Feb SPX 950 Call and Buy Feb SPX 975 Call, or Sell SPX 800 Put and Buy SPX 775 Put.  Trading both of these together will leave you with an Iron Condor, which will give you even better profits if the SP 500 stays between 800 and 950. If I had to pick between them, I’d say the call spread has the better probability of success.

JD

The stock market blew through support this morning.  It has gone well beyond losing momentum.  The bad news is overwhelming the financial markets once again. Next stop is 8,000 on the DJIA and 800 – 820 in the SP 500.  If you have been playing some bearish strategies on the Index options, you may want to take your profits near the close today, rather than risking a bounce on the open tomorrow morning.

As it turns out, you did not miss the boat by not jumping in the market on the first day of the new year. We did not think you would. This past week more than wiped out the stock market gains from the low volume opening day gains. Once again the stock market was hit by bad economic news. This week though, the market did not shrug off the dreadful news like it had done throughout December.

From a technical perspective, the market did make a slightly higher high, and finished the week supported by its 50 day moving average. While that sounds good on the surface, this rally is losing momentum and looks like its going to hang in a trading range for a while. I expect to see a test of the 850 level on the SP 500, 8,200 on the DJIA, and 28 on the QQQQ. If those levels hold, it will provide a better buy point than the current levels.

JD

The stock market started the new year with a 3% gain, reaching its highest level since early Novemeber. While it is good to see a higher high, this gain was achieved on light holiday volume. The market has established a base area of support between 850 and 950 for the SP 500, and 8,400 and 9,200 for the DJIA. If you have not done so already, you should be able to use pullbacks to the lower levels of these trading ranges to begin entering the market again.

We have reached the one year anniversary of bringing you market commentary from Bob Allen and Joe DiNunno on the OptionsVest web site. We hope you were able to benefit from our insights. We look forward to sharing more of our insightful ideas on using options for investing and trading in the financial markets in 2009.

JD