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Stock futures see red

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Stock futures are decidedly in the red and have been weakening prior to this morning's opening of trading. S&P futures are down 7 points, NASDAQ futures are lower by 23 points and Dow futures are off 82 points.

Fair value for the S&P 500 today is $1.72. HL Camp & Company has their computers set for program buying at $2.70 and set for program selling at $0.54. Subscribers wanting to know more about fair value and program trading can visit www.programtrading.com.

Trade gap widens after negative effects from terrorist attacks

Today's economic data shows the U.S. trade deficit widened to $29.4 billion in October after a sharp narrowing to just $19 billion in September. The wide disparity in the trade gap numbers and sharp decline in September was largely attributed to the September 11th terrorist attacks.

Imports of goods and services rose 11.4% in October. The increase of roughly $11 billion for October, was almost identical to September's reduction because of the way World Trade Center insurance payoffs were accounted for.

Imports totaled $106.8 billion in October. When one excludes September's data, it's the lowest total for imports in two years. This number looks to be what is spooking equity bulls before the open of stock trading.

Exports rose 0.5% or $544 million to $77.3 billion. Economists were looking for the trade gap to rise to about $26.8 billion.

Analysis

Today's trade gap numbers have stocks under some early morning pressure. What really looks concerning to most is that imports have fallen to a two year low (excluding September's data), yet the trade gap is widening. With a widening gap, yet declining imports, we then begin to understand just how weak the export market is. This is what is going to put pressure on stocks near- term. The concern we see in the stock futures area is what kind of pressure the slower global economy will continue to play in future earnings. While the U.S. economy is showing some signs of economic recovery, today's trade gap numbers really show that foreign markets and consumption there does not necessarily have a hunger for U.S. products and services yet.

Inside day trading technique

Over the past months, I've tried to teach the "inside day" trading technique. Use it today! If you've played a stock using this technique, remember to be moving up your stop under the previous day's low if you're a trader!

If you see a call play listed today on OptionInvestor.com in a stock, look at the chart of the stock! I there an inside day setup that you can use as an action point?

Let's say you bought a call a couple of days ago. If yesterday's trading had the stock trading "inside" Monday's range, could a break lower from yesterday's low be your action point to take a gain or cut the trade? If you're uncertain about the near-term performance of the call option or stock you hold long, then try to use some of what you've learned to your advantage! If nothing else, it may be an "excuse" for you to take a profit and raise some cash.

Triple-Witching

Remember that Triple-Witching is this Friday. Expect volatility near-term and don't necessarily be surprised if a stock you're holding in our account (long/short, call/put) moved suddenly in a particular direction. There will most likely be some large positions be rolled to January or some last minute end-of-year adjustments being made in some institutional accounts.

Remember, institutions use options to hedge positions. If they want to roll a hedged position to January or next quarter, that type of institutional move when directed on an individual stock can impact the way a stock trades.

Jeff Bailey
Senior Market Technician
Option Investor

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