That was another very impressive rally! All 30 Dow stocks higher and most of the Major Indexes up around 3.5%. The catalyst was LEH (+18%) and UBS (+15%) raising capital and quelling fears of liquidity problems and the good news seem to channel everywhere. Even the ISM came out and said Manufacturing Activity was unexpectedly on the rise. Normally, as has been the pattern for most of our booming one-day rallies, they are short lived. This one is different for two reasons. We broke through and settled above 1360 in the SPX, a big resistance number. Secondly, each one-day pop was creating a higher low as you can see below in the chart. This rally seems to have a better chance of being sustained. Typically the first day of a quarter is strong, but this seems to be some pent up cash flowing back in. Hedge funds are rumored to be sitting on piles of cash, and a 3.5% gain in a day will get some attention.

thinkorswim, Inc. and its registered employee, Steve Quirk, do not solicit or recommend any form of trading in the individual stocks (or their derivatives) mentioned above. Please do careful, independent research before investing any money as well as weigh the possible consequences on your particular financial situation before doing so. The risk of loss may be substantial.

I am writing this Friday morning after the release of the latest employment data and it has negated the gains we were seeing earlier this morning. If this market could talk it would say just give me anything positive, I want to continue this Rally! Unfortunately, the quarter of a million jobs lost this quarter is probably the tip of the iceberg. I still believe we will end up holding most of this week's nice gains, but the outlook for the next couple months scares me.

Past housing corrections and "recessions" (can we just say it) have lasted much longer and the losses were much deeper than what we have seen so far.

The market pundits, realtors and retailers all tell us we may have formed a bottom. I am not so sure. If the past is any indication, we definitely have more to go. In the past 3 recessions job losses lasted almost a year before we turned around and saw growth. The inventories of homes in the "hottest" markets is staggering. I read the current inventories in Florida will take 10 years to sell at this sales rate. As we have said earlier, it just requires us to shorten our time frame on trades and be nimble. In this case milk the rally until it turns over, sometime around 1390 in SPX and wait for the next opportunity.

Steve Quirk

thinkorswim, Inc. and its registered employee, Steve Quirk, do not solicit or recommend any form of trading in the individual stocks (or their derivatives) mentioned above. Please do careful, independent research before investing any money as well as weigh the possible consequences on your particular financial situation before doing so. The risk of loss may be substantial.

We have had three attempts at breaking out to the upside since the start of the year and each time we have bounced off the 1394 level in the SPX. Here we are knocking at the door again and this time I think we may have the legs to do it. As you can see by the chart below, the resistance has held and looks formidable but the conditions have changed and this could be the breakout.

There are a number of points which compel me to believe we may see a move through these levels this time. The first is although we are still mired in the sluggish economy and the financials are nowhere close to being finished with the credit problems, the market is always looking forward. That is the news of yesterday and the market cares about tomorrow. Right or wrong, that is how traders tend to think. Secondly, as we are starting to see this earning season, the expectations are so low we are getting some upside surprises. Next, our past attempts to break though these levels have been furious rallies followed by dramatic moves right back down. This time we are establishing a base and seeing higher lows. Finally, although the inflow into hedge funds this quarter was dismal, money managers are hording cash and if we break out they will not want not be left behind.

I am not assuming this is the end of our bear market or that this rally will be an extended one. My belief is we will have a nice short term bear market rally and will probably remain range bound for the better part of the year as we digest the election news, financial news and the commodity and currency recent moves.

My strategy from an option standpoint is selling vertical put spreads on the major market ETF's (SPY, IWM, QQQQ) with a target of around 2-3% below the current price, or roughly 30 to 40 delta options, and buying 2 strikes lower. In the case of the SPY I would be selling the May 132-134 Put Spread around $0.50. I am risking $1.50 but my probability of success is about 75%. I use May because my time horizon is relatively short and options decay quicker as we approach expiration. Additionally I am giving myself a cushion to be wrong and still remain profitable. In all the possible scenarios for this trade, 3 out of 4 will yield a profit for me. If we sit still, rally or drop modestly I will still be profitable. My only risk is if we sell off dramatically in which case my risk is defined. Good Luck and may you be profitable!

thinkorswim, Inc. and its registered employee, Steve Quirk, do not solicit or recommend any form of trading in the individual stocks (or their derivatives) mentioned above. Please do careful, independent research before investing any money as well as weigh the possible consequences on your particular financial situation before doing so. The risk of loss may be substantial.

I believe the earnings report that YHOO came out with last night now puts them in a position of having to do a deal with somebody. The most likely candidate is MSFT, whether they like it or not. I do not believe that MSFT is walking away from this deal and they will get it done sooner rather than later. There are other interested parties in doing some sort of deal with YHOO or combining with MSFT. Regardless, something is going to happen and I believe that it is going to happen sooner rather than later now. I want to play this conservatively. I want to buy the stock and sell at-the-money calls, but instead of buying the stock, which is trading for around $28.50, I am going to buy a deep in-the-money July 17.5 call. These calls have very little premium in them, so you will participate on the upside as if you were long the stock with less than half the risk. Then I want to sell the May or June 27.5 calls to receive that entire premium when the deal goes through. If you are not comfortable with that amount of risk, which is about $900 per 1 lot spread if you sell the May options and $850 if you sell the June options, you can also purchase the May 22.5 put for about $0.20 which will reduce your downside even more. Good luck.

Neither thinkorswim, Inc. nor Scott Snyder, (employee of thinkorswim Advisors dba RED Option) solicit or recommend any form of trading in the individual stocks (or their derivatives) mentioned above. Please do careful, independent research before investing any money as well as weigh the possible consequences on your particular financial situation before doing so. The risk of loss may be substantial.

That is the primary question that everyone seems to have at the moment and it sure is tough to get any kind of read. We see the economic numbers that come out and they are the most confusing thing of all. Every time we get a good number we hear that the market can't keep that up and we sell off and every time we get a bad number, the take is we have to improve and so the market rallies. We are at the top end of the range that we have seen so far in '08 and sadly I believe we are going to continue to use those words for a while: The trading range of 2008. Looking at the accompanying chart it is clear that 1394 is a level that we just cannot seem to break convincingly on the emini S&P futures.

We see this happen again today (Thursday) on a day where it looks like the market is lined up to continue a big rally. The market action I have seen leads me to believe that we are going to be in a tight range for the first 6 months of '08 and we continue to bounce off of 1394 on the upside and 1250 on the downside. If we are to break out to the upside it is going to have to happen over the next few weeks, be it from MSFT earnings or the Fed meeting next week. If this fails yet again, I believe we will go right back to the 1300 level. The product to watch in conjunction with this is the VIX. We cannot get the VIX to close under 20 and unless we see these things happen in unison, we are not going to see the market continue in to a bullish pattern. The greatest part of all this of course is that we will all stay tuned and see how it turns out.

thinkorswim, Inc. and its registered employee, Joe Kinahan, do not solicit or recommend any form of trading in the individual stocks (or their derivatives) mentioned above. Please do careful, independent research before investing any money as well as weigh the possible consequences on your particular financial situation before doing so. The risk of loss may be substantial.