SELL IN MAY AND GO AWAY

This is the old Wall Street saying. Very often stocks will move sideways to down during May...sometimes through the entire summer. We are sitting (and holding) at some key resistance which we want to watch closely...about 880 on the S&P 500 and around 8350 on the DOW. My prediction is that we will either move up, down, or sideways over the next few weeks. In other words, we are at an area in the markets where it is difficult to read the future probable movement. As you have read in previous blog postings, I have tried to do shorten up my trading time frame. I have also looked to trade stocks in clear trends. This is an area where option spreads can work quite well. The VIX is showing what appears to be a bullish ABC pattern. If the VIX does move up, the market will most likely sell off. If the VIX breaks this support (around 33.50), we could get another strong move up. Not just because the VIX would break support, but also that the S&P 500 and DOW would most likely break above their resistance as well. If the market does move sideways for a while, you will need to practice some patience. When the market is trending strongly, there are usually a lot of stocks making big moves. When the market is trending sideways, we might only have a small fraction of stocks making big moves. So for an example...if there are 100 stocks making big $5 moves in a strong trending market, there might only be 10 stocks making $5 moves in a sideways trending market. Since we don't know which stocks will make those $5 moves, the probabilities become much lower (in a sideways market) that we will catch one of those stocks. This is why is is a good idea to lower expectations, reduce risk, or even go to cash when the markets begin to move sideways. I've see a lot of money given back to the market when students over trade during a sideways trend.

SUCCESS STORY

Hi Jerry; Sat. night I'm looking at some stocks and happened upon waters corp. Good ABC pattern, good secondary, so
I bought two June 30.00 contracts. Sold both this morning for a 93% gain. I love this business. Fred B.

BUSY WEEK

I have a very busy week ahead of me and I might not be able to post everyday. I will try to post something if I see a significant change taking place in the market. I think that the "smart" money is getting out of this latest rally and the "dumb" money is holding it up. I'm sticking to my recent analysis until I see a reason to be an aggressive buyer again. There are still some trading opportunities, but it would be wise to risk less on your current trades and start to build cash. This will allow you to be prepared for a sudden sell off and to have cash available to take advantage of the next rally. One opportunity today might be SFD. This is a pork producing company that is selling off for no rational reason today. The "swine flu" scare is not tied to pork consumption. The stock has dropped to its 50 day moving average and it is (so far) holding as support. The move down today looks like the completion of a bullish ABC pattern. The buyers came in right after it gapped down this morning and the volume has been high. If it finishes up for the day, it would be a very bullish sign.

SUCCESS STORY

Hi! Jerry

I purchased 57 contracts CAKE Jul 15 Call @1.70 on

April 20.I sold all contracts April 24 for 3.90.

John R.

SUCCESS STORY

Hi Jerry,

Bought ZQN GP (Amazon) at 7.00 and sold for 11. 

Justin

INTERESTING ARTICLE

Here is an interesting article: http://articles.moneycentral.msn.com/Investing/SuperModels/investors-leave-hope-for-dead.aspx?GT1=33009

I'm not quite so pessimistic, but he does bring out some points that we need to consider. I still say you should just follow the trend...but if the trend changes and starts to go down, we should recognize that the economy may not recover as quickly as we might "hope".

HAPPY BIRTHDAY!!

Today is the one month anniversary of this blog. So far...so good...thanks to your success stories! I appreciate the time you are taking to share your success with the group. One particular stock to watch is HANS. I mentioned it a couple of weeks ago and today it made a big move. This one needed some patience. It bounced around sideways for the last couple of weeks...but the 50 day moving average did hold as support. This looks to be a pretty significant breakout. It could run to around $45 which is the area of the next significant resistance. AAPL's move today looks like an exhaustion gap. Here is where I would lock up any profits. Same with AMZN. NFLX has sold off hard over the last three days. The trend is still considered up but the high sell volume would concern me quite a bit. WPI still looks good despite some strong sell offs in the pharmaceutical/biotech sector. Watch TXT. It has had a nice pullback over the last few days and it is still rumored to be a takeover candidate. The reward to risk seems pretty good if you use the 50 day moving average as a stop and the resistance around $16.50 as a target. MFE is still moving strong. ATML had a nice move today on higher volume. The 50 day moving average is in the process of crossing above the 200 day moving average which would be considered very bullish. If the stock price breaks back below both of these moving averages, you would want to get out...and get out quickly. I still like KSS unless it breaks below the 4/20/09 low. IBM still looks good. Energy stocks will probably drive us crazy in the next few months as they try to break out of this sideways trend. For riskier bullish patterns I like USO, APA, HES, DNR, BP, RIG...and I could probably go on and on. The reason why I like the risk on these is because they have been quietly forming these bullish ABC patterns. I could see money coming out of some of these over extended sectors and back into energy. At least you would want to keep watching them. I need to emphasize again that these are riskier patterns.

SUCCESS STORY

Jerry I find your Blog very helpful, it's the greatest, it's the first thing I log on to daily. There's an old saying that states, (It's Hard To Teach An Old Dog New Tricks) but it doesn't say that it's impossible. Thanks Fred D.

NO CHANGE

No change in my words of caution I made yesterday. I still think the probabilities here are that we will either retrace a bit or move sideways for the next few days...or possibly a week or two. This doesn't mean that we have to stop trading. We just need to adjust our strategies and capital allocations (risk). For those that have attended our Advanced Option Strategies course, this is a good environment to implement some of those strategies...particularly the spreads. For those...like myself... that prefer directional trading (buying calls or puts), you might want to shorten up your trading time frame. I will look for shorter term patterns using a 60 minute chart. I will also prefer to stay in trades for only 1-3 days (approximately). The reason why this strategy would work better is that you might get a market that is up 100 points one day and down 100 points the next. Since 80% to 90% of stocks follow the major market averages, you often get a decrease in trending stocks when the market moves sideways. Let me be clear...I don't know if the market will move sideways or not in the upcoming days or weeks...but we won't know we are moving sideways until we have been moving sideways for a while. I hope that makes sense. Since we don't know the future, we can adjust our strategies in anticipation of future movements. If we are wrong in this assessment, it will be more of an opportunity cost (we'll just make less money). To protect from the possibility of a strong sell off, make sure you...1. Have stops...and... 2. Keep those stops pretty tight. I would also suggest trading stronger companies. If you use the Market Trend Signal website (www.orbisadvisors.com), scan for stocks with a Strength Rank of 80 or higher...especially if the short term trend is up and they are registering a buy signal. These stronger stocks have been moving up nicely despite any pullbacks in the market. For those that want to use a free trial, go to www.orbisadvisors.com and sign up. For those that are already using the trial, you have probably already discovered that you can easily pay for your monthly subscription with the trade recommendations offered on the site...or the ones that you find using the scans and trend signal software. I will try to post an update later tonight with results of some past recommendations as well as some current patterns I like.

SUCKER'S RALLY?

Is this a sucker's rally? There was broad participation in today's rally but I am going to be cautious in believing that we will move higher. The bulls are continuing to show their strength, but I am still concerned with yesterday's spike in the VIX. It's like a boxer who has just been blasted in the chin and has fallen down. He might be able to get back on his feet, but it doesn't mean that he is going to quickly resume the fight without feeling the affects of the blow. He could also be in danger of getting the finishing "knockout" punch. I'm not predicting a knockout, but I am concerned that for the first time in several weeks we had fear enter back into the market. After such a big move up, we can't ignore that signal...even with the move up today. I might be going against other voices that you are listening to, but I am going to stick to my belief that there is more selling to come. I'm not going to dig in...I don't want to fight the trend if it wants to keep going higher...but for now I am looking at today's move as a suckers rally. Tighten up stops on bullish positions or sell some contracts to lock in profits.

UPDATE

These stocks are still showing "buy" signals and the trend still looks okay: NFLX, AAPL, WPI, RCII, AMZN, CREE, and MFE. No hurry for new positions. Wait to see if the market continues to sell off. WDC and MU still show a "buy" but I would say to watch these for another day or two (I didn't like today's move on these stocks). These next stocks have moved to a "hold" or a "watch": GS, ATML, GLW, FCX, IBM, and KSS. I still like some of these stocks, but the recent selling has put them into a riskier "buy" position. If support levels hold, they could look good again. If they don't...we will move on to the ones that do look good.

WE'RE FREEEE...FREE FALLIN'...

I'm not ready to call this a free fall, but we are definitely selling off. This shouldn't be much of a surprise. We talked last week of being near resistance and the need of reducing risk exposure to the market. This selling should continue tomorrow. Remember what I said last week...if the selling was controlled, it would be viewed as a bullish pullback...if selling was panic selling, we could drop a lot further. The volume wasn't outrageously high, but the VIX did spike up today (over 5 points!) indicating an increase of fear in the marketplace. I would look to DOW 7450 and SPX 805 as the next support levels to watch. You could look for bearish trading opportunities in the next few days, but don't chase the drop. If we gap down significantly at the market open tomorrow, don't jump in. Wait for a rally, then play the next move down. There might be some nice short term bearish opportunities in the financials this week. They have been up the most during this bullish run, which means that they have the most to drop when the market corrects. The short sellers aren't ready to give up their grip on these stocks so they might be able to push them down further over the next few days. If they can't (and the financials rally back in the next few days), we could have another strong run due the the short sellers getting squeezed again. Be careful about looking to Straddles or Strangles as a solution to this uncertainty. The volatility spiked up today across the board, thus lowering the probability of these trades working right now. You could also look for this expected pullback as an opportunity to get into some of those strong uptrending stocks, but you might need to be patient and let them sell off a bit more.

ARE YOU KIDDING ME?

The scariest part of today's trading was hearing the CNBC reporters (it was CNBC's 20th anniversary) reminisce about how they knew nothing about the markets when they started working at the network...I would argue that a lot of them still don't know anything! The markets had a quiet day today which is often the case on expiration Friday (April options expired today). We are bumping up against resistance on the S&P 500 and the Nasdaq. There is still a bit more room for the DOW. For now, I'm still trusting the trend. I will still enter some of these bullish trends, but I am being cautious. I am risking a lot less in any trade I am getting into. This is an area where it is very difficult to predict (or even anticipate) future moves. For the ultra cautious, it might be a good time sit out of the market or at least operate with very tight stops. For those that want to keep trading, it is a time for shorter term trades and small bets (risk or capital in each trade). The idea here is that you still want to trade the trend (because we could very well blow through this resistance), but you don't want to lose a ton of money if the trend suddenly reverses in a big way. I have been impressed with the strength of the bulls lately. I see other sectors that could lead the next move up. I've told you to keep an eye on the energy stocks. Most of them have been moving sideways for a few months. Some of them are starting to break through resistance levels. I'm still watching them, but they could start to move soon...maybe when they start reporting earnings. I still like the chart on IBM. Citigroup reported earnings today and sold off a bit. It is still holding its uptrend. Today's move could have been due to some profit taking...especially since a lot of other financial stocks were up. Let's see what happens on Monday...when Bank of America reports. Jesse is looking for success stories from using the Market Trend Signal software on www.orbisadvisors.com. Please send some to him from the link on that website...or send them to me at jerry@myoptionmagic.com. Title the e-mail MTS Success Story. Thanks for your help! Enjoy the weekend!

RECAP

Just a recap...stocks that are up since we mentioned them on the blog...NFLX, WPI, WDC, GS, RCII, AMZN, AAPL, CREE, MU, ATML, GLW, FCX, and MYL...there are probably more but I only went back about a week. Some might be down a little, but I don't recall seeing any that have broken the trend yet. I should be getting more success stories...START TRADING!!!!

BECOME A FOLLOWER

If you haven't already done so, please join the Followers section on the blog. I want to keep track of how many people are using the blog. Also, keep the success stories coming. I have received a lot of comments as to how nice it is to see the success of the students. It gives hope (and ideas) to those that might be struggling and encouragement to those that might be looking to place a trade for the first time in their lives. Thanks for the work that you guys are doing!

SUCCESS STORY

Hey Jerry I bought 10 DEERE 34 June calls on 3/31/09 for 3.80 and sold them on 4/15/09 for 7.00. Also I bought 20 BAC 7.50 May calls for 1.07 on the same day and sold them 3 days later for for 1.71.


Thanks for everything and I am really enjoying the new website.


Sincerely,

Keith H.

SUCCESS STORY

Hey Jerry,

I thought I would share a couple positive trades I made. Made the IBM trade beginning of week. I sold too early and could of made more money but I am an amature and hate losing...I took a $780 profit,

I had a fast chart and saw the S&P minis chart was due for a pullback so I shorted a few contracts and made a profit.

All in all I am grateful for the positive $1100 today on trading.

Thanks

Steve

TECH RALLY

Today's story was mostly the technology sector. The bulls are still showing strength and I will stick to those bullish trades until I see stronger signs of any significant pull back or trend reversal. Buy some time on your new option trades. I would try to buy out at least 60-90 days unless the options are too expensive. Sometimes the trades don't always move in the direction we expect...or within the time we expect... when we get into our trades. This is why we focus on following the trend of the stock. If the trend changes, then we want to get out or cut a loss. This is particularly important during earnings season. A stock might sell off on good news. This doesn't necessarily mean that the trend has been broken. It could sell off a bit, then rally to new highs a few days later. As long as the stock hasn't broken the trend (usually the 50 day moving average or another key support/resistance area), you should probably stick to the trade. Most of the same stocks we have been following are still showing up on my scans. Some new ones would include KSS, IBM, and ORCL. Keep an eye on Citigroup tomorrow as they report their earnings. I think they will give us a better signal as to how much the financial sector is improving. They were on their death bed a few weeks ago. If they show that things are getting better, we could see a strong move from the market...not to mention a major short squeeze. Check out some of the recommended stocks in the Virtual Investing Club website portfolio (www.virtualinvestingclub.com). These stocks have been performing very nicely over the last few months. Since the philosophy of those picks is built around bottoming stocks with huge upside potential, there could be some nice long term gains if the market continues to recover. These need to be stock trades rather than option trades due to their long term nature. E-mail me at jerry@myoptionmagic.com for questions about a free trial to that website.

SUPPORT HOLDS

The current support areas held which is a good sign for the bulls. If this area continues to hold tomorrow (and we get another move up), we would need to start looking at the next resistance around 8350 on the DOW and 880 on the S&P 500. The financials led the move up today. So much for the continued sell off that I mentioned yesterday. I'm another example of the fact that no one can consistently predict future market movements with complete accuracy. Sometimes I'm dead on...and sometimes... I'm only only kind of dead on. I'm going to predict a big sell off tomorrow so that we will continue this rally in the markets (Lately it's been doing the opposite of what I forecast). Financials did hold up nicely today. I'm going to keep a close eye on JP Morgan's earnings on Thursday (tomorrow) and Citigroup's earnings on Friday (that is unless they decide to report tomorrow). We all expected Goldman Sachs to do well, but the real test will be with JPM and C. There is a pretty heavy option bet to the upside for Citi. To help deal with any market "pain", look at MYL. It is a generic pharmaceutical company and the trend is sweet. Let's make some money to help pay for all the taxes we just paid...and more that we will likely pay in the future.

Earnings... Earnings... Earnings

We are entering earnings season and the early signal is that the market might sell off a bit as these earnings are reported. It sold off today as GS reported and it could continue tomorrow. INTC reported after the market close and so far it is trading down in after hours trading. We want to keep a close eye on the support levels. We are sitting on 840 on the S&P 500 and 7900 on the DOW. It appears unlikely that these support levels will hold due to the volume behind today's decline. Having said that...the VIX dropped a bit today, indicating that there wasn't much fear behind today's sell off. This looks like a classic example of buying the rumor and selling on the news. The market rally in March and early April was probably due to the anticipation that things are improving. Now that we are seeing the actual numbers, the market could sell off. The next support area is around 7450 on the DOW and about 805 on the S&P 500. I would like to see controlled selling. If we get a 300 to 400 point drop on very high volume (with a big spike in the VIX), we could end up giving back a lot of the March gains. I haven't seen any reason to panic yet so use the pullback to get back into nice upward trending stocks. One strategy is to "ante up" into the trade. Instead of buying your whole position at once, try buying just one or two contracts. If the stock continues to move up, you can add to the position by buying more contracts. If the stock continues to sell off, you don't incur high losses because you didn't have a large position. Yesterday I told you to start watching energy stocks again. They were some of the only stocks with gains today. They could be ready for a run. This is a riskier entry point, but it could payoff big time if the run starts here. CHK is one I've been watching for a while and it is now finally breaking out (there was huge option volume today on the Jan 2010 $50 calls). Watch BIIB this week. I mentioned last week that they were a takeover candidate. There is very high open interest on the 55 and 60 strike prices. They are supposed to report earnings on Thursday. The speculation would be that somebody knows something and that is why there is a heavy bet to the upside. I've also seen many of these go in the opposite direction so this would be considered a gamble. Financial stocks sold off today on higher than normal volume. This would indicate that they could drop a bit more. See how they perform tomorrow and keep an eye on the volume. Yesterday I told you to look at the FAS on a pullback...there could still be more of a pullback. There are a lot of financial stocks reporting earnings in the next two weeks. There is a great strangle opportunity on Citigroup (C). There was huge volume today on the May $5 calls and the May $3 puts...the volume was higher than the open interest. Citi is currently trading around $4. Their earnings are coming out around April 17th (Friday). For more information on trading Strangles or Straddles, call or e-mail the office (customerservice@myoptionmagic.com) and sign up to take the Advanced Options Strategies course (course 2).

BE CAREFUL WHAT YOU READ...OR HEAR

There are a lot of bearish articles being written out there, especially on the financial stocks. You might have also caught an interview or two on CNBC talking about how the bank stocks will ultimately continue to decline and that this latest move is just a rally within that larger downtrend. This may or may not happen...I don't know the future and I'm sure you don't either. The point of this blog entry is to remind you to be cautious about who you are listening to. If you look at the authors of these articles or interviews, you will find that they are often short the market or running Bear funds. There are probably some reputable people out there discussing the issue, but who can you trust? First of all, I think it is healthy to have some skepticism with any opinion being offered. It keeps you from naively drinking the kool aid. The most important thing for you to focus on is the trend. I have often said that "the price is always right". It really doesn't matter what the news says or what the current opinion is, the price is the only thing that matters. If the financials start to sell off and break below key support levels, I will be the first one to point out the possibility that the uptrend is over. Until that happens, trust the price. I'm not saying that this is a great place to enter a lot of new bullish positions...I've been mentioning the possibility of a market pullback for a few weeks...but I think you should trust the trend until it shows you signs that it could be reversing. Keep looking at any pullbacks as opportunities to get in...at least until those pullbacks start pulling back too much (in other words...you get stopped out). It's okay to listen to opinions and market commentary... but just remember that the "price is always right". WPI could be a new one to keep an eye on. It has pulled back to its 50 day moving average and the short term trend is up. FAS still looks pretty good, but wait for the pullbacks. I also like NUE. NFLX is one from the past that keeps going...and going...and going. The energy stocks could soon be back in play. Keep an eye on them. I've heard all the reports of inventory levels still too high, but things can change quickly...we were also supposed to be paying $5 a gallon in gas by now. Trust the price action and right now the price is breaking above resistance on a lot of the energy stocks.

SUCCESS STORY

Jerry,

I bought 4 July AAPL contracts on 3/1 based on your blog and sold 2 at 15.20 and still hold the remaining 2 at 17.30. Nice call!

Michael B.

SUCCESS STORY

Here's one Jerry...I bought 4 contracts of the May 110 calls on AAPL for $5.45. This was back when you first talked about Apple. I sold them yesterday for $11.80. That's $2,540 in one week! Thanks! Greg M.

SUCCESS STORY

Hi Jerry, thanks again for your blog site. I also had a nice easter gift,,,didn't get 300% like you on FAS,,,,but made $700(onFAS). Just joined Orbis,,,gave you credit--hope they at least give you an Easter egg! thanks, rich

WOW!! HAPPY EASTER!

Today was a strong move. We clearly broke above resistance on the S&P 500. The volume was average but there was some strong buying taking place. I want to look at the larger picture on the S&P 500. We could have some pullbacks along the way, but one larger target we can look at is the 950 area. This was the high of the December 2008 rally. If we can reach this resistance area and pull back to around 750, we would have a textbook inverse head-and-shoulders pattern. This would be a great pattern to help launch a new bull market. In the shorter term, the target would be around 875. Money is coming back into the market. There are a lot of stocks that are starting to trend upward. The "pop" we got in the financials today could be attributed to a lot of the short sellers getting squeezed. That is very bullish for the longer term trend of those financial stocks. I captured close to 300% today on a riskier trade I made on the FAS which is an ETF that is 3x's the move of the financial index. Many of the stocks we have been following on the blog made nice moves today. TXT shot up over $3 (39% move on the stock). AAPL was up over $3. I could go on and on. I expect some success story e-mails over the weekend because I know some of you made money today (even if you didn't trade any of these stocks). You can e-mail those success stories to jerry@myoptionmagic.com. Jesse just added a new feature to his Market Trend Signal software program. You can now look at a chart of any stock you like and see whether or not it is giving you a buy, hold, or sell signal. If it is in a "buy" area, the chart will be green...hold = yellow...red = sell. This would be a nice confirmation tool to use for your trades. It is also a nice tool to use for managing your trades. Why get out of your trades too soon if the chart is still giving a "buy" or "hold" signal? For more information and a free 30 day trial, go to http://www.orbisadvisors.com/the-market-trend-signal.php. Have a great weekend...and a great holiday for those that celebrate Easter. May the Easter Bunny be kind to you...he already gave you some great option trades.

STOP EVERYTHING!!!!

Sorry. I couldn't think of a good title...but I did get you attention! We didn't get the sell off today that I was expecting, but we did get more information about the market. We learned that the bulls are still strong and they are buying on any dips. This is a good area to get into some of these uptrends that have pulled back a bit. We could still sell off a bit tomorrow, especially since we are going into a three day weekend (for the markets). Even if we do sell off, it looks like those support levels would most likely hold. I'm watching the VIX to see if this new support will hold. If it drops below it, we could be on our way to another move up. Keep watching the stocks I listed last night.

STOCKS TO WATCH

Some stocks to watch...DLTR was the strongest current bullish pattern. There are a lot of stocks that could be great bullish trades if they pull back a bit more. They include: AMZN, NFLX, GLW, FCX, CREE, WDC, GS, RCII, and of course AAPL. Note the key word...pull back. The market is due for a bit of a correction. Be patient and wait for good entry points. You could also use contingent orders above previous highs and keep moving those orders down a bit if the stocks continue to sell off. This way, you will only buy the stock/option when the stock is (hopefully) starting to move back up. You would also be able to abandon the stock if it began to pull back too far or start to break below support levels. There are a few stocks out there with buyout rumors. These are dangerous trades, but they can sometimes payout big if the rumor becomes fact. I will usually buy out 60-90 days and find out when they are reporting earnings. Sometimes there is high, unusual option activity that can signal possible movements. I don't always like to get involved on the day of the high option volume. Sometimes the rumor will come out and the options will spike...then then stock will pull back a bit a few days later. This is usually when I like to get in. Some possible buyout candidate stocks include BIIB, TXT, CLF, and TRA. Sometimes rumors are thrown out to try to manipulate the stock. This is why I try to take chances on just the stocks that already have nice bullish trends or have made bullish moves (like a move above the 50 day moving average). This way, if the rumor doesn't become fact, you could still possibly make money on the trend. Get a free 30 day trial subscription to the Orbis Advisor's Market Trend Signal website. You can find it at www.orbisadvisors.com. Tell them you heard about it on my blog. Keep the success stories coming. If you have any questions or comments, you can e-mail them to me at jerry@myoptionmagic.com.

TREND REVERSAL COULD BE IN THE WORKS

We got the gap down this morning in the markets. We were anticipating this possibility. The S&P and DOW futures were down big before the market opened so we knew we would get that gap down. Near the close it looked like the bulls would stage another comeback, but that quickly failed in the last 15 minutes of the market. It really was key today to wait and see how this market closed. The pattern is definitely there for a continued sell off during the next few days. The volume was light today, telling us that there wasn't much conviction behind today's move. I think that will change when traders see how the market closed today. I would expect tomorrow to have much higher volume. It might also have a much stronger move down as well. Look at some of the bullish trades you have been waiting to get into. They might pull back far enough to give you another chance to get in. Watch the support levels on the DOW and S&P 500. We expect the market to pull back, but we don't really want those support levels to break. Look at about 7,400 to 7,450 on the DOW and 770 on the S&P 500. For bearish trades, I would usually just trade puts on the SPY or DIA. The best entry for those trades would have been at the market close today. If we gap down tomorrow, you might be in a position of chasing the trade (not a great position to be in). The highest probability trade might be to patiently wait for the market to finish correcting, then get into your bullish trends. I will try to list some stocks later tonight.

JOIN THE "FOLLOWERS" SECTION

See earlier blog post.

ISLAND REVERSAL?

The bulls are still showing strength as they nearly erased a 155 point drop in the DOW. The DOW still finished down 41 points, but again the story was how the day played out. The DOW and S&P 500 are still fighting the inevitable retracement and there is a key possible reversal pattern that has showed up over the last few days. It is called an "island reversal". An "island reversal" is created when the stock gaps up (or down) near the top (or bottom) of a bullish (or bearish) trend. The prices then stay near that gapped price for a day or two (although sometimes it can be just one day). Then the price will gap down (or up) and start going in that new direction. The gapped prices look like an island...separated from the rest of the price movements. The DIA and SPY both show a gap up that occurred on April 2nd. This gap has been followed by two days of prices in the same area (see charts - DIA - top, SPY - bottom). If we gap back down tomorrow, the markets could have a high probability of selling off (although this pattern would be much stronger if we had not pulled back on March 30th). This could create a short term bearish trade. You would want to wait until the last hour of the market to make sure that the market was going to close down. If we gap up or continue to move higher, we could still continue this incredible bullish move. One area to keep an eye on is the resistance area on the SPY. We are sitting right at it. Any significant move higher could really propel the market higher. Again, you would want to watch the close of the market tomorrow. If we have broken above this resistance, you could look for a short term bullish trade. This possible movement of the market could affect any current positions you might be in. One other thing to look at...look at the price action of the financial stocks today. Almost every financial stock's price movement today was within the price range (intraday high and low) of Friday's movement. A price break out of Friday's range (either way), combined with the market analysis above, could present a short term bullish or bearish trading opportunity on the financial stocks. AAPL continues to fly...up $12 since I first mentioned it. AMZN and NFLX have also done well. This is not a good entry point for new positions on these stocks...wait for the next pullback. Also, keep watching FSLR.

JOIN THE "FOLLOWERS" SECTION

Join the blog "Followers" section if you haven't already done so. You can do this by clicking on the "Follow" link on the right side of the page under Followers. If you don't have a Google account, click on the "create a new Google account" link and follow the instructions. Try to add your picture if you know how to do that. No big deal if you don't. I'm going to use this "Followers" section as a barometer as to whether or not it is worth my time to keep doing this blog. If you like the blog and want it to continue, please add yourself to the Followers section. Thanks!

SUCCESS STORY

Jerry

These are the results for several of my better option trades.

I bought 10 contracts of the RIMM Jun 35 call @10.80 on Mar.20, I sold them @ 25.05 on Friday.

I bought 220 contracts of the CY Jun 7 call @.45 on Mar.24th.I sold them @.90 on Friday.

I bought 62 contracts of the DRQ Jun 35 call @1.55 0n Mar.20.Still open. Closing price on Friday was 2.75.

John R.

VIX CLOSED BELOW 40

The VIX closed today at 39.70. This is a key indicator for any bullish move in the future. The VIX measures the fear in the market place. A rise in fear usually translates into a fall in the market. Even though the major averages only rose a little bit today, this sharp drop in the VIX signals an increase in confidence from the bulls. In the short term the market could sell off a bit (its had three straight "up" days), but this drop in the VIX (combined with the breakout above resistance on the DIA, SPY, and QQQQ) could lead to a continuation of this bullish run. Trade management and money management is key to making money in any trend. Although we see the bulls getting stronger and stronger each day, we could get some news that comes out from some of these companies during their earnings releases over the next month that could change the direction of this trend. This is why our stop losses are so important. Avoid getting into these trending stocks too late. Take AAPL for example. It has moved up about $9 since I mentioned this pattern on March 26th. Although I think it could go even higher, I would never enter a new trade from where it is at right now. I would want it to pull back a bit. It is due to pull back. It has moved up three days in a row...with each day being a smaller move than the day before. Wait for a pullback. Some of the trending stocks I have mentioned in the blog have pulled back a little and could be even better patterns than when they were first mentioned. Still other patterns may have reversed their trends or moved below key support/resistance levels. It is wise to stop yourself out of patterns that have failed or aren't working according to plan and get you money into ones that are working. You are getting a good education as to how to trade these markets. Sometimes my outlooks or predictions are dead on...sometimes they are way off. Our job is really not to be market psychics. It is to look at the probabilities and the trends and manage those trades with sound money and trade management techniques. We want to look for signals or clues that can give us an edge or just keep us from getting to far to one side (bullish or bearish). I will look at some scans tonight or tomorrow and list some trends that I like. Have a great weekend.

BULLS GAINING STRENGTH

The bulls were fighting to hold gains today. The market looked strong early on but it did give a lot back at the end of the day. Today's move was done without the help of the financial stocks. Most of the financial stocks finished the day with very weak price patterns. Whenever a stock gaps up then sells off, it is usually a sign of weakness. Look for some of these financial stocks to sell off a bit within the next few days. This doesn't necessarily mean I would buy put options on them, but I would probably wait for a pull back and find a nice new bullish entry point. There is a lot of short interest in the market right now. We saw some evidence of that as the market sold off near the end of the day. With the S&P 500 and the QQQQ at recent resistance levels, we could get a small pullback. However, if we break above these resistance levels, the short positions would get squeezed and the market could really take off. The strength of such a move would also encourage a lot of money on the sidelines to come back into the market. I am keeping a close eye on the VIX. I'm looking for it to drop (and close) below 40. There were some nice bullish patterns that triggered "buy" signals today. I found many of them using Jesse's new trend finding software program. It is a fantastic program. If you are interested in a trial subscription, go to www.orbisadvisors.com and sign up for the free 30 day trial. Let him know that you heard about it on my blog. AAPL had another strong move today and it still has more room to roam. FSLR is also looking pretty good.

SUCCESS STORY

I bought 5 contracts of the GOOG May 340 calls @ 26.20, yesterday. Placed the order at a limit and was hit when the stock fell yesterday in early trading. Sold them today @ 37.50. Chris N.

WAS TODAY AN APRIL FOOLS MOVE?

The short term trend indicators are up but there are some reasons to be cautious of today's move. The volume was lower today than yesterday, even though we moved up much higher. A closer look at an intraday chart of the S&P 500 shows that we could have completed a B wave on the move up today. This might mean that we could drop down in the next day or two and test the support level around 770. I personally feel that a bit more of a pullback would lead to a stronger move up. This is such a critical point. We have perfectly filled in Monday's gap down and this latest rally is at a .618 retracement of the March 26 - March 30 move down. A trading strategy here would be to take a small initial position into a bullish trending stock. Buy one or two contracts and wait for additional confirmation. If it moves higher, you can always add to the position. If it moves lower, you can wait for it to come back up...then add to the position. If it doesn't come back up, then you only lost a small amount of money. I like a couple of bullish patterns on CF, GS, and MFE (can anyone say Conficker Virus).