Weekly recap: 05/04/09 - 05/08/09

Weekly Range:

Open 140.77
High 143.57
Low 137.74
Close 139.42
Point Change -0.24
% Change from last week close -0.17%

MNX managed to close the week on a down note for the 1st time in 9 weeks! VXN likewise is stumbling lower once again, however it is finding support on several points which mark the highs from mid 2007 to mid 2008. MNX has bumped up against its 200dma and has paused - the problem now is figuring out if its pausing before heading higher, or pausing before it heads down. With the bank stress test over - and investors bidding up the financials higher and higher, fewer people becoming unemployed, and successful treasury sales last week, it seems like the economy is on track for a quick recovery - yeah right! This market is way over extended and due for a pullback. I do agree that most of the really bad news is out already, so I don't think that MNX will revisit its March lows - at least any time soon (those vicious downtrends aren't going to be repeated). Technically, I see support at 130 or so (this also happens to be right around the 50 and 100 day averages). Lower than that support lies in the 115 - 117.50 range. Early in the week I plan to sell a NDX 105 put - as of tonight the mark is about .25 - this would equate to a yield on 10k margin of about 21% and a simple return of about 2.15%. A strategy I am considering is to sell the NDX put early on (about seven weeks prior to expiry) then come in later and sell several of the MNX puts at the same strike - hopefully for a better price, once the index falls further. As I had commented in an earlier post the falling VXN is decreasing put premiums for options 25-30% otm and with 30 days until expiration, so I am having to sell put options with more time until expiry and only about 25% otm in order to bring in enough premium. However, the falling VXN also indicates a lessening of fear in the market, which in actuality means that the odds of a large and quick market pullback are growing less likely than before.

The May 97.5 put options that are still held are likely to remain otm (expiry is just 4 days away) - a yield of 18.40% in just 30 days. Hopefully every month is like that.