COIN FLIP

After yesterday's long entry, today's will be very short. I didn't like the sell off in the last 20 minutes of the market today. The volume was a bit higher today, but that day-end sell off creates more of a murky outlook. We need confirmation for any new bullish or bearish trades. I will sit on the sidelines until things become a bit clearer. Watch the previously mentioned market support levels to see if they hold. Make sure you have stops on your trades (bullish or bearish).

NOT TIME TO PANIC...YET

The volatility index (VIX) closed today at 45.54 with an intraday high of 46.28. It gapped up at the open as the market sold off hard. This definitely signaled some panic in the move down this morning. That is the bad news (unless you are very bearish on the market...if so, just invert these remarks). The good news is that the volume behind today's move was about average, indicating that the move might not be as significant as it appears. These two indicators might appear to be contradicting each other (a spike up in the VIX on average volume). A closer look at the VIX shows that today's gap up moved the VIX to its 50 day moving average. This 50 day moving average could act as resistance and the VIX could start to move back down (which would be bullish). I told you to watch the financials as they seem to be leading this market. Almost all the financial stocks sold off today, but on average to less than average volume. They all appear to be completing possible bullish ABC patterns on their intraday charts. There has been a lot of recent talk about the huge short interest on some of these financial stocks. If these stocks rally again, they could be propelled even higher by all these short positions being covered at the same time. This is referred to as a "short squeeze". On the other hand, there is still some room for them to fall. If the short sellers are successful, they might be able to drive down the financial stocks enough to retest or even break their recent lows. There are key support areas around 7,450 on the DOW and 770 on the S&P 500. If we are bullish in the market, we want these support areas to hold. For bullish trades, there is no reason to guess or hurry. Wait for the market to start to recover. Remember the old Wall Street saying, "You never want to catch a falling knife". Don't get caught up so much in the point move up or even the percentage move. We want to see higher and increasing volume on any market rally. We also want to pay attention to any increasing volume if the market continues to sell off tomorrow. If these support levels don't hold, look for bearish trades on the DIA, SPY or any stock in a clear downtrend. I still like HANS for a possible bullish move but any new trades should wait for it to get back above the 3/26/09 high. I also still like AAPL, but wait to see if it closes up tomorrow (pay attention to the last 15 minutes of the market if you can). It is sitting on a great support area, but it needs some confirmation. I also like the bullish patterns on NFLX and AMZN. Hold off on the Energy stocks. Their recent breakout now appears to be a false breakout and many of these stocks have moved back into their sideways channels.

SUCCESS STORY

Jerry,

I have certainly had some learning experiences during the first few months of trading, but things seem to be improving for me.

I had my first multiple 100% gain this week. I bought 2 MYGN calls at 6.10 and sold them yesterday for 27.70 in about 2 weeks time. Hopefully I'm starting to get the hang of things.

Mike B.

SHOULD WE JUMP IN AND BUY??

We got a bit of a pullback today. There were several signals yesterday so this wasn't too much of a surprise. Should we have bought puts this morning? You could have but that would have been a risky trade. You won't last too long betting against the trend unless you can get some confirmation that could increase your probabilities. In the big picture, this was not a big selloff. It is hard to tell right now if the selling will continue or if we will rocket to new highs. One thing that I will keep a close eye on this Monday is the VIX or the Volatility Index. You should be able to just type in VIX on your charting service to pull up the chart. This is a measure of fear in the marketplace. It has an inverse relationship to the market which means if it goes down, the market usually goes up (and visa versa). If you are like me, this will mix you up all the time. I always have to stop and think...if this goes up, the market should go down. Anyway, there is a really nice bullish pattern on the intraday chart of the VIX. This means that the VIX could go up...and the market could continue to go down a bit (look for the VIX to move above 42.50). However, this support level might not hold. If the VIX moves down below support (around 40.20), the bull run could really take off. Watch for this confirmation next week. These are short term signals not long term signals. A bullish pattern I like is HANS (I drink enough of their Monster energy drinks to keep them in business...so it must be a safe bet!). If we break higher on the VIX, you could look for a bearish short term move on the DIA or SPY. Have a great weekend!

SUCCESS STORY

Bought MMM Apr puts and just made $500 profit....short term trade at resistance, looked good to me.

Thanks

Steve A.

SUCCESS STORY

Hi Jerry, well after the last class I looked at charts for a hour. liked BIDU,,,bought at market(just wanted in) ,,,put in my stop loss,,,,sold today for $800. good start! take care, thanks again Rich R.

SUCCESS STORY

I wrote you last week about a purchase of HK options in my real money account. I bought the April 15 options. It think I fell victim to amateur hour. I saw that I had a $850 profit for the day and took it.
- Steve A.

GOLD

I had a question on the outlook of gold. Here is a wave count on the GDX which is the goldminers ETF. If you don't understand the Elliott Wave count, make plans to take the Elliott Wave course that we teach. Call 1-877-766-8006 or e-mail customerservice@myoptionmagic.com.

RESISTANCE?

The market continues to be impressive during this rally. AAPL, MOS, MU, and ATML all moved up nicely. CSX, BNI, and NSC broke above their resistance areas during today's move and would need to move back below that resistance before I would consider them for bearish trades. I mentioned yesterday about watching the financial stocks. They seem to be leading the market. If that is true, then today's stale move in financials could mean that we might be ready to pull back a bit. We are sitting at some resistance levels in the DOW, S&P 500, and Nasdaq. If they are going to pull back, this is when they should do it. Volume was lower today than yesterday, even though we reached higher highs. In the past two days there have been fewer and fewer stocks participating in the rally. This divergence could be another clue to a possible correction. The volume on the at-the-money puts for the SPY and the DIA was higher than the open interest. In other words, there are a lot of people today betting against a higher move. I will be watching these resistance levels very closely tomorrow. If we break above resistance, there will probably be a short squeeze that will push us even higher. If we sell off, we will look closely for support levels to hold. This is not a great place for new trades so I won't list any new stocks today. I am waiting for confirmation of the next likely market move.

Interesting Article

Below is a link to a very interesting article on leveraged and inverse ETF's.


http://news.morningstar.com/articlenet/article.aspx?id=271892&pgid=etfarticle

IT KEEPS GOING...AND GOING...AND GOING

The markets are trying hard to hold onto this rally. We hit some resistance in the DOW (around DOW 7,900) and pulled back. The S&P 500 held its support around 800. All three averages are above their 50 day moving average. The buyers that came in late in the day are showing that traders and investors aren't afraid to buy right here. Having said that, I still feel like we will soon sell off a bit. If we break above 7,900 on the DOW, we could move up much further before correcting. The next major resistance on the S&P 500 is around 875. Watch the financial stocks. They seem to be leading the market right now. If they start to sell off and move back down below their 50 day moving averages, we could see the market follow. If we do start a correction in the markets, there are some nice possible bearish ABC patterns on some of the railroad stocks. I particularly like CSX, BNI, and NSC (in that order). They are bumping into some horizontal support/resistance as well as their 50 day moving averages. They are all right at their 50 day moving averages and their 50 day moving averages are moving downward. If the market breaks higher, you could look at AAPL (I really like the short term possible bullish pattern), HES, DNR, ATML, and MU for some possible bullish moves.

CONTINUATION OR CORRECTION?

The market sold off at the end of the day. We would expect some selling and profit taking to occur after a move like yesterday. The volume was average indicating that there wasn't a lot of fear behind the selloff. The question now is whether or not this pullback creates a buying opportunity or is it the beginning of a larger correction. The next resistance level for the DOW is around 7,900 (about 880 on the S&P 500). That is about 250 points away on the DOW. If we continue to sell off, we want the 7,400 level to hold as support (800 on the S&P 500). If these support levels are broken, we could have a much deeper correction. Any new bullish trades would need to have fairly close stop losses. For bearish trades, you might want to wait and see if the market support levels are broken before getting into those trades. Keep an eye on the Energy stocks. Some of them are starting to break out. Some stocks to look at include MOS, NOV, HES, DNR, and RIG. If we break the support levels in the market, we could see some bearish trades in the financial sector.

DOW RALLIES 500 POINTS!

Dow rallies 500 points on Treasury's plan to deal with toxic assets. The market has moved up significantly over the last 10 days and there has been broad participation in the rally. We have also broken above some significant resistance levels. The danger for new trades is the fact that we are in a kind of "no man's land". We are overbought in the market and could start a decent correction any day now, but we could also rally another 200 to 300 points before getting that correction. This is not a good spot for new bullish or bearish trades. The play here is to be patient and wait for a better entry point for any new trades. Existing trades should have tight trailing stops or you should lock in some profits by selling some contracts.