Dow futures pointed toward a 300-point gain over Friday’s close, establishing a clear direction for Wall Street to begin in December with a major breakout. While stumbling along 270 points behind on Sunday, the 30-share average ended November with an almost twelve percent gain for the best month in over 33 years. The gains were fueled by the collapse of oil prices, which fell by more than six percent as the New York and Chicago exchanges bended in the impact of global markets. The bearish tilt on China and Europe also added to the sense of urgency. The European Commission signaled on Friday that it will release another negative report on Thursday, with the release expected to increase more nervousness over China.
The big story on Dow futures over the weekend was a major announcement by brokerage firms that planned to offer three new lines of financial products. The first is an all-cash deal that will allow institutional investors to trade the stocks in this market via short sales and derivatives. The second is the first ever full-service commercial paper contract from CMC, which will let companies enter into forward contracts for cash payment. The last is expected from JP Morgan, one of the largest investment banking firms in the world. This will be the first product from a mainstream bank to be offered in over a year.
Traders immediately responded to the news, pushing up the Dow futures prices by over three percent on the day. As traders digested the news and awaited what the announcements might mean for the markets, volatility began to rise and money management issues loom. Two of the biggest markets, Nasdaq and NYSE, were closed over the weekend. Some believe that traders may have been shorting the stocks to take advantage of the news. If that is the case, those who would be short would need to quickly sell their positions before the markets open on Monday.
If traders had managed to hold on to their stocks, they would have lost a great deal of money. Dow futures, however, are open for seven days after the market opens on Monday so if traders had purchased the stocks by then, they would have lost a great deal of money. Many traders think that traders will move their money from the stock market to the futures markets in the near future. This would leave less money in their accounts for other investments.
Many traders are holding on to hopes that the economic report released by the federal government will provide them with some insight into the upcoming release of the national unemployment rate. Many economists are predicting a record low unemployment rate next week as the weak economy continues to suffer. Other reports released over the weekend also pointed to weak job growth in the U.S. as the recession lingers on. With the Dow futures market anticipating a small economic bounce after its big drop, traders could begin to turn their attention back to the stock index and away from the futures markets. Traders may feel that they are making money by purchasing the national stock index and selling the dow futures contracts.
The selling pressure could continue as the weekly options report comes out. In the past, investors in the options markets have bought large blocks of stocks that changed direction very quickly. Since the vast majority of these trends are short term, they do not provide very much information. But it is possible to profit by buying and selling large block shares with short term profit margins. The best way to exploit the short directional changes in the Dow futures prices and the corresponding short directional changes in the stock index prices is to trade using a combination of a premium picks alert service, and a combination of a discount broker’s service and a mini options trading service.
Many investors feel that the drop in oil prices has benefited the stock market far more than the Dow futures. The price drop was initially caused by the Chinese government curtailing its share sale activities. Investors anticipated that the government would cut the share sale activities to help the economy recover from the impact of the credit crunch in China and reduce the pressure on the economy. The Chinese government released a report indicating that the drop in the market share was directly correlated to the weakening of the Chinese economy. Many investors attributed the weak economy in China to the weakness of the market, and the drop in the Dow futures prices was seen as an opportunity to make some money by selling the short positions in the Dow futures.
Another chart example used to illustrate the usefulness of a combination of the three main trading strategies is the DJIA chart example. The DJIA stands for the Dow Jones Industrial Average. This is the average price of the Dow Jones, which is determined by the London composite and the S&P 500. The combination of the four charts show the trader the signals to buy the Dow futures, the discount brokers, and the mini dow Jones futures contract.