WE'RE NOT DONE YET!

The short term pattern suggests that we have another move down before we look at the possibility of another rally. We might move up a bit at the open tomorrow, but the market should then sell off to around 900 to 903 on the S&P 500. To keep it simple, I like put options on the SPY or DIA. This is a short term pattern, not a long term pattern. I will re-evaluate things after tomorrow.

DIVERGENCE AHEAD

The market sold off in the first 30 minutes which is what I thought it might do based on the short term charts. It then made a strong rally with energy stocks leading the way. We closed the day at 927 on the S&P 500...just 3 points from the 930 resistance area I had mentioned in previous posts. There are a few divergences forming that show some possible downside to the market in the near future...possibly after hitting this resistance area. Look for a gap up (or rally up) at the open and see if it can break above the 930 resistance. If it stalls there and starts to sell off hard, we could get a bigger correction. This is what I am looking at for put option opportunities. I'm also watching the Dow Transportation Average. This is often a leading indicator as to how the economy is doing. It was down today...even with the DOW and S&P posting some nice gains. The short term trend is still up, so we don't want to get so bearish that we miss opportunities if the market keeps rising. I do still like most of the stocks that I posted yesterday so keep watching those. I would include BAC and JPM in the list.

WILL WE SELL OFF AGAIN THIS MONDAY?

The bears have seemed to control the last few Mondays but the bulls have been showing some resilience in the last few trading sessions. We might get a drop early on tomorrow and possibly another down Monday, but ultimately I think we might be moving towards the next resistance level around 930 on the S&P 500. Remember...in the next few months I think we will need to retrace the move up from March. How that eventually plays out is anyone's guess. For these daily (or almost daily) updates, I will assess what the market is telling me each day and try to pass that information on to you. I'm trying to post information that is helpful to both the position traders (two weeks to two months) and the day/swing traders (one to five days). The short term traders will assess the short term trend and play those quick moves up or down. They will "flip flop" on almost a daily basis because that's what the market is telling them to do. The position trader will try to capture more of the trend over a longer period of time. If I am a position trader, I might sit out this market or start applying more conservative strategies (like covered calls) to take advantage of the recent choppy price action of the market. Right now it looks like we won't start to get a more consistent trend until maybe this fall. The VIX has broken below the support of its recent range and the DOW and S&P 500 are back above their 50 day moving average (By the way, I use a simple 50 day moving average...not exponential). This is why I think we will move up in the short term (although Mondays have been a bit bearish lately). Technology has been the strong sector lately so look for ABC patterns that form on any retracements. Here are a list of bullish patterns from my scan: EXPE, STX, BIDU, NTES, NDN, EJ, AKS, STAR, FFIV, DGI, STEC, and RAX.

SUCCESS STORY

Hey Jerry

I bought a total of 10000 shares of LZB (lazy boy) on June 15 and June 24 and sold them on the 26th of June for a 3600.00 dollar profit. Thanks again for everything.

Keith H.

AND THE EXPERTS SAY...

I had another title prepared but I'm trying not to swear too much on this blog. I was expecting a possible snap back rally, but his was a mighty big snap back. I was left with a lot of mixed feelings after the market closed. I've spent the last few hours looking at charts and indicators to see where we might be going in the next few days. The conclusion...I have no idea. There is almost an equal argument for both a rally and a decline. As I've talked or listened to other traders, I've been relieved to hear that they don't have much of an idea either. The Market Trend Signal (www.markettrendsignal.com) is showing a shift to a short term bullish trend. I'm inclined to follow this signal since it has been very accurate over the last several months...however, I also know that we could be in for some whipsaws over the next few days. I wouldn't get into any new positions (for obvious reasons) and I would make sure I had well defined stops on any open positions. Here are some reasons for the confusion. Bonds and Gold were up today which is usually a bearish signal. The VIX closed at a new recent low which would be viewed as a bullish signal. Tomorrow I will look to see if there is much follow through to today's move. I will see if there is any divergence in the VIX (like a rise in the VIX and a rise in the market). I will also look to see if there are a lot of stocks participating in any continuing rally in the market. If the market rallies higher...but fewer stocks participate...this could be a bearish sign. For bullish patterns, I like the SMH and the XLF. For bearish patterns...well I don't trust many bearish patterns after today's move. This might change after tomorrow. I'm so glad that I was able to give all of you a clear outlook for tomorrow...I'm kidding of course.

BULLS FIGHTING TO HOLD SUPPORT

The market sold off a bit as the FED announced that there would be no changes to the current interest rate. I expected that. I didn't expect the buyers to keep prices from falling going into the close. We are at an area on the chart where the 50 day MA and the 200 MA are beginning to intersect. The market tried to hold this support today. I think its possible that we could get a little snap back rally in the next day or two, but I still feel we will eventually move lower. This is not a great area to enter any new trades so be patient.

POSSIBLE SUCKER'S RALLY

As the dollar fell today, many commodity stocks started to rally. I heard many "experts" say that the commodity stocks were now rebounding and should now be considered a "buy". A closer look at the chart patterns show bearish ABC patterns forming on a lot of these stocks. These bearish ABC patterns are also showing up in the major averages. To me it looks like they are trying to rally back up to the previous support level they just broke through. Once the market hits that resistance, it could make another move down. What I would look for tomorrow is either an early morning rally that fails, or a sharp rally after the FED announces their decision on interest rates (which should occur sometime in the early afternoon). This rally (if it does occur) would complete a bearish ABC pattern that could lead to another move lower in the market. There is also a chance we could just sell off at the market open, but usually we get a little sucker's rally when the FED makes an announcement especially during a downtrending market. The market sold off a bit at the close which is also a pattern it has followed over the last several trading days. The bearish patterns I like are still the DIA and SPY. I also like NFLX which seems to be completing a larger bearish ABC pattern. There are a lot of possible bullish ABC patterns showing up (WYNN, BYD, JPM, AXP, COF, WFC, PNC, and ZION), but they would need some confirmation before I would consider them as trades. When the market moves, it drags about 80% to 90% of the individual stocks with it. If the market does sell off a bit more, it would likely pull a lot of stocks with it...including some possible bullish candidates. Keep a watchlist of uptrending stocks so that if the market reverses this downtrend, you will be ready to capitalize on a new upward move.

MARKET SHOWING WEAKNESS

There isn't much success in trying to gauge future market moves during an options expiration Friday. In fact, you can sometimes make some big mistakes by drawing too many conclusions to the technical indicators that come out during that Friday. The buying and selling can be due to decisions that are related to option positions and not necessarily to an expected future movement of the stock...at least not a future beyond the closing bell on Friday. Stocks that barely break above or below support/resistance lines (on an expiration Friday) don't always reverse the trend. Now since we broke support last Tuesday...and not Friday...I can use that indicator to stick to my belief that the market is weak and the bears are gaining some control. If you watch the close of the market (one of my favorite things to do), you can see that it has been selling off recently in the last hour of trading. I've also noticed that when good news has come out recently, the market can't seem to go higher. The market has also seemed to have priced in most of the news that is coming out. The FED is meeting next week and debate is whether or not the announcement they make has already been factored into the current market levels. If this is true, the market will most likely sell off this week...even if the news is perceived as being good or positive. It would probably take some sort of unexpected good news to cause the market to move up enough to break through any resistance levels. On the other hand, any bad news could really drive down an already weakening market. Energy is showing some short term weakness. This sector has usually been moving in the opposite direction as the dollar. When the dollar falls, energy usually goes up. The dollar has been falling over the last few trading days, but energy has also been falling. This could mean that energy could pull back some more. Keep in mind that this is a short term expectation. I still believe that energy is almost a "can't miss" bullish trend for the next year or two. The bearish patterns I like are still the DIA or SPY.

FAILED RALLY

The market showed further weakness as the early rally failed at the end of the day. The rally did provide a possible bearish opportunity on the DIA and SPY. In the short term, we might rally a bit more before making another move down...possibly breaking back above the previous support at 920 (temporarily). This might make more sense because that rally might retrace that previous decline by about 38.2%. The other possibility is that we just drop from here. Either way, the outlook is more bearish. As you look at the charts, you will notice a lot of stocks have dropped below their 50 day moving average. Many of the stocks that I listed last week as having bullish trend potential have broken their support levels (including...in some cases...their 50 day moving average). In a few weeks, they might return to their uptrend...but for now, we might need to return them to the watchlist. The Market Trend signal now shows a "Mild Bear" condition. This is the site I use for my scans. To learn more, go to www.markettrendsignal.com and sign up for the free 30 day trial.

SUPPORT BROKEN

The S&P 500 and the DOW both broke their support areas today. No, I will not be lowering my support lines. This does look like there could be more selling to come. I would look for major confirmation on any bullish trades. For bearish opportunities, I would look to buy put options on the DIA or SPY...especially if we rally a bit back up to that previous support area. There are a lot of stocks that have broken below their 50 day moving average. The smart trade here might be to sit on some cash and hope these stocks pull back. It's hard to tell right now if the pull back will be small or if we will retest the March lows. In the near term, I would look at 880 as the next support for the S&P 500.

SUPPORT...WHICH SUPPORT?

My first thought, at the market open today, was that the 930 support had been broken and we were about to sell off for the next few days. I even told one of my classes to begin looking for bearish trades. This was before I had the opportunity to look at some other charts. That 930 support level was based on the 5/08/09 high that we had recently broke. When you break through a resistance level, it will often act as support when the stock (or market) pulls back to retest it. When I looked at the charts of the DOW and Nasdaq, I saw a different support level. The DOW and Nasdaq are at the support of the 5/08/09 high, but the S&P 500 is finding support at the 920 area which goes back to the highs in January and February of this year. All this would make sense since we dropped almost 200 points today on one of the lowest volume days of the year. Not exactly a reason to panic. There are also a lot of bullish ABC patterns in the finance sector, energy sector, and many others. If we break this support within the next few days, then I would feel there could be more downside. If we rally in the next few days...and if we break the 950 resistance we have been watching so closely, we could have a bullish move that takes us to 1000 on the S&P 500. Look for confirmation on your bullish trades and watch this new support area to see if it holds. Just use the recent patterns posted on the blog. Most have still held their support and should move up if the market continues to rally. If we break this support, wait for a small rally and look to buy puts on the SPY, DIA, or QQQQ.

START WATCHING ALTERNATIVE ENERGY

As oil prices continue to creep higher, we need to start looking at the alternative energy stocks and the agricultural chemical stocks (ethanol). You know which stocks I like in the agricultural chemical sector. For alternative energy, I like SOL...I love that ticker symbol...and JASO (they both have a high strength rank and are coming out of nice consolidation patterns). FSLR is one that looks poised to make a huge move. It could move up $30 (or higher) in a short period of time if the market makes another move up. The strength rank isn't very high, but the chart pattern suggests it could be ready to explode! You combine that with the rising oil prices and a alternative energy friendly administration and you've got a higher probability trade. Wait for the breakout of the triangle. I also like SOLF and ESLR. All of this really depends on a market breakout to the upside so keep that in mind and don't just gamble on a trade.

SUCCESS STORY

Hey Jerry,
I bought 10 contracts of Rowan Cos (RDC) recommended by Jesse and made a $1000.00 before I got out. I wish I had a few more of those. I'll keep with my studies and maybe catch something on the next wave.

Best Regards,

Bob P.

STILL THE SAME

There wasn't much of a change in today's market action. We are still waiting for a breakout. It could come on Monday, which has been a pretty volatile day of the week over the last few months. The Iranian election results should be known (over the weekend) which could have an affect on energy stocks. There is still no way to know for sure which way this will break. When it does break, it should be easy to recognize...up or down. If it is up, look at some of the sector leaders like energy and financials for trading opportunities. If it breaks down, you could look for bearish trending stocks to trade...or you could just trade puts on the SPY, DIA, and QQQQ. Have a good weekend!

SUCCESS STORY

Hey Jerry,

I made a trade on GNW at $4.38 and am now sitting on a $3800 profit. Good news!

Thanks for the help and coaching.

Steve A.

THE PRESSURE IS BUILDING...

It looked as though we were going to break above the 950 level in the S&P 500 for most of the afternoon. We then sold off the last three hours and went back into the range. The pressure is building for a breakout...either up or down. I'm more likely to go with the current trend and bet that we will breakout to the upside. If we do, we should run to the 1000 level. There are also a lot of bearish scenarios including a few technical divergences. I just feel that there is still a lot of investor money still on the sidelines. They've been waiting for a pullback...but if it ends up being a breakout, they might start to rush in. Watch the market open. We should know in the first 15 minutes what will likely happen by the end of the day. Look at DRIV, EVVV, JEF, PALM, DB, and CERN. Have a good weekend!

SUCCESS STORY

Jerry,

Have not seen too many success stories lately. i hope that there are some, just not being reported or posted.

Today I had likely the best day yet since I learned all about ABC patterns etc. etc. I currently have 15 positions, 7 long and 8 short. Even though the market was fairly flat (down 3 points on S&P), I had a total return on my portfolio of 11.2%. In ONE DAY !!!!!

I have long positions in ANR, CBK, CHK, FST, HMY, PCX, WAB
Short positions in ALTR, APOL, COCO, FE, GILD, OSIP, PPDI and WMT.

Hope to have many more days like this. Thanks for the coaching

Frank

HITTING A WALL

The market seems to be hitting a wall. It tried to gap up above the resistance at the market open, only to immediately drop back into the range. The VIX gapped down and immediately rallied back up. The sideways trend is actually normal for this time of year. It's hard to find a catalyst for the market to break this resistance. However...the contrarian in me thinks that if so many people are predicting a pullback right here, we will probably breakout above this resistance. I heard an interesting comment the other day which really sums up contrarian thinking. The commentator said that the market will always try to hurt as many people as possible...or something like that. I know that sounds very sadistic, but it is often true (It sounds like the background for a new Stephen King novel). The point being that if too many people are lined up on one side, the market will often buck the majority perception and move in the opposite direction. We'll see what happens tomorrow. I was going to inquire as to why I haven't received any new success stories...but I realize that many of you have probably been sitting on the sidelines during this choppy move (according to my earlier admonition)...or you've been trying to trade this market and you're getting your butt kicked! I told you these sideways conditions can be brutal to a trading account. There are ways to hedge yourself. Try using credit or debit vertical spreads, calendar spreads, or even covered calls. This may decrease the percentage return, but it will give you a higher probability of getting a return! For those interested in these strategies, contact your enrollment advisor about our Advanced Options Strategies eight week course. It will increase your knowledge of how to best trade stagnant or sideways trends. I've been doing several debit spreads ahead of next week's June expiration...many on patterns listed on the blog. If you do have new success stories, please e-mail them to me so that I can get them posted on the blog. Some of you need a few more minutes in the spotlight!

NO BIG CHANGE

The markets didn't move much in either direction today, but there seems to be some pressure building on that 950 level on the S&P 500. With the VIX moving down today and the S&P 500 pushing against that resistance, a breakout could be coming. I spend the day building up some small trades in anticipation of a breakout in the next few days. Who knows...it could break in the opposite direction. The dollar moved back down today and some energy stocks started to look good. I particularly like the natural gas stocks (APA, APC, CHK, NGS, and EOG). NRS is a good way to play nuclear energy and I like that pattern. Also, check back on the agricultural chemical stocks (POT, MOS, AGU, CF, IPI, and SQM). I talked about these last week but we didn't get any confirmation and they made another move down. They are showing up on my scan again and I do like the patterns...even better than last week. The coal stocks also still look good. If you want to wait for confirmation on any of these patterns, wait to see if we breakout above 950 on the S&P 500. Also, check the UUP to see if the dollar is still trending downward. MRVL broke out big and CREE looks good again after its pullback. Look at BX. It has a nice pullback pattern and should do well if this uptrend continues. A break above the resistance around $11.50 could give some nice confirmation. Bottom line...if we get the breakout, almost anything you pick should go up in value. These are just some of the higher probability patterns.

AND THE NEXT MARKET MOVE IS....

The market has chopped back and forth for the last few trading days. It's been hard to see where it is going next. The bullish argument is that every time the market sells off a bit, the buyers come back in and push prices back up. The bearish argument is that the buyers haven't been able to push prices much higher and eventually they will lose confidence and the market will tumble. Today's move didn't really do much to improve either argument. I'm still minimizing my trades right now in case we make a big move...in either direction. I'm in mostly bullish positions because that is still the current trend, but I have minimized the size of those positions in case we get a 400 point drop (or something like that). I'll be watching the market open tomorrow. I wouldn't want to see a move below 925 on the S&P 500. If we break out above 950, the market could really start to move up. There has been a lot of consolidation over the last month which could lead to a big move up...if we can breakout above this range. I'm also watching the VIX very closely. It has been trying to break above the resistance at 31. If it can close above 31.50, I might begin to get more bearish again. If it drops below 28, the market could take off. Watch financials this week. They are still sitting on key levels and could make a nice pop. The financial stocks that showed up on my scan include JPM, PNC, WFC, C, and BX. I really like the chart of JPM (I mentioned this one last week). BX has a great Cup with Handle pattern and could have the biggest breakout. If you want to trade all the financial stocks together, look at FAS. I also like some of the gold stocks like SA and GOLD. A few other patterns that showed up on my scan include NILE, ONNN, and OVTI (I like the stock, not the option on this one). I would be cautious with the energy stocks right now. If the dollar starts to gain strength, it could drive energy prices down a bit. One of the reasons why the energy stocks had been performing well (without an increase in demand) was because of the falling dollar. A rising dollar could affect all commodity stocks...which includes gold so keep that in mind. You can use the UUP to follow the dollar.

BULLS ARE STILL FIGHTING

The markets were down for much of the day...in almost every sector. I've noticed that during some of the recent sell offs, the market tends to rally during the last hour of the day. It seems that buyers...so anxious for a pull back of some kind...jump in and start buying at the end of the day...especially when they don't see a big reason for the sell off to continue. Seeing this trend, I bought some calls about a half hour before the market closed when the DOW started to rally off of its low. The DOW was down about 138 points before this end-of-day rally began. By the close, the DOW was only down 59 points! That was about an 80 point rally for my call options...in 30 minutes! I'll take that. If the market gaps up and takes off tomorrow, it will be a very nice trade. If the market moves up a little and dies...or if it moves down a little and dies, I will still have a good trade. The market would need to sell of and move down 80 points for me to break even. I kind of like those probabilities. The major averages found some support on today's pullback. The key is if those support levels hold. The VIX spiked up...just like I told you it could...after forming that bullish ABC pattern. I'm really looking at the Nasdaq market (NDX or QQQQ) for some signs of the strength of this recent trend. The Nasdaq has a much stronger uptrend and had its bottom last November rather than March (like the DOW and S&P 500). It seems to be the real leader of this rally. When we start to see the QQQQ or NDX start to break below key support levels, look out! Just one stock came up on my scan tonight (not enough of a pull back I guess). It was GERN (it is a Biotech stock). If Energy stocks sell off for one more day, you will probably see a ton of patterns being mentioned. Watch the Coal stocks and the Agricultural Chemical stocks. They didn't participate much in the last big energy rally so it could now be their turn in the front of the line. Let's see what you can do. Also...keep an eye on the financials...again. They have been "out of favor" for several days. They seem to be at a critical area (for most of the patterns). Almost all have nice looking bullish ABC patterns which could signal another rally...but many are also sitting right at their 50 day moving averages. If these support areas break, the financials might continue to sell off. What a great area to look for a trading opportunity!

TAKING A BREAK

The market took a break today after the huge rally yesterday. The sideways movement today confirmed the strength of yesterday's move. The problem is that there aren't many stocks in good buy positions right now. If you currently have bullish positions, you should probably see if the trend continues. If you are looking to get into new positions, you should probably wait for the next pullback. I just about pulled the trigger on a couple of trades today, but I backed out at the last minute because I didn't like the entry point. I have had some bad luck recently when I have forced trades. If you like to buy the breakout, there are probably several stocks you could get into right now. I will sometimes buy a breakout, but I like to do so when I think the market is nearer to the beginning of the trend. Since I think the market is nearer to the end of the current trend, I would view "buying the breakout" as a riskier strategy. Last week's patterns are still moving well. I would expect there to be a pull back in some of the energy stocks, but the agriculture stocks could make a run. There are some triangle patterns forming on MOS, POT, AGU, CF, IPI, and SQM. See if they break out of the triangle in the next few days. There was also money going into health care today, but I will have to see if that was just temporary. Some of the patterns on those health care stocks look terrible and I would need to see a clear change in trend before I got too excited.

For a bearish perspective, I point to the VIX. With volatility getting back to lower levels, the complacency is increasing. This is usually when the market can sell off in a big way. Although the pattern can go a bit lower still, there is a bullish ABC pattern forming on the VIX. I'm watching this very closely. The market has broken out to new highs, but the VIX has not yet broken to new lows. The bearish view would be that this is a divergence and could be an early sign that the rally won't last. I'm still trading with the current trend...but I am taking defensive measures to protect myself in case there is a sudden sell off.

THE PRICE IS ALWAYS RIGHT

I have been pretty bearish on the overall market for the last week, but I can't ignore what the price is actually doing. All three market averages have broken out to new highs within this latest trend. The S&P 500 is now above its 200 day MA. These are all confirming the uptrend. The VIX did move up today on the big rally. This tells me that the smart money is still a little cautious about today's move. I wouldn't chase this move. If you already have positions that are making money, sell some contracts and lock in some of these profits. Hold on to a few contracts to see if there is some follow through tomorrow (or over the next few days). I don't recommend any new positions right now. I am still very cautious about the big picture and I don't see many short term patterns I like. I will add some tonight if I see any.

TREMENDOUS WEEK

The patterns I posted on the blog over the last week have all moved up!! Here is the breakdown so far (they are all up by these percentages)...FEED 11%, CTB 4%, MRVL 3%, RIMM 7%, PCLN 7%, ACM 1%, AAPL 7%, WRC 11%, ACF 24%, WDR 1%, KEG 7%, MDRX 6%, HSP 3%, JOYG 14%, UNG 16%, XTO 7%, UNH 1%, NLR 4%, KOL 11%, VLO 4%, USO 6%, APA 4%, APC 6%, CHK 10%, HES 4%, JRCC 9%, PCX 4%, ANR 8%, MEE 12%, BTU 10%, and FCL 8%. I wasn't expecting anyone to buy into all of these positions, but isn't is nice to know that you probably made money if you traded just 2 or 3.