DITTO

Not much different from yesterday. Keep watching to see if the dollar rallies and gold drops. Also, watch this area of resistance for the S&P 500. I'm sick again...that's right, sick AGAIN! I can barely talk and my head is about to explode. I don't think I will be posting anything else until Monday, unless something very significant happens. Have a great Thanksgiving holiday! For those outside the U.S. that don't celebrate Thanksgiving, go out, eat a big meal, and watch football games all day long...everyone can "celebrate" a day like that!

MARKET TREND SIGNAL

I'm looking for success stories for the Market Trend Signal website. If you have been using this service for your trades, please send me success stories. For those that aren't using the service, go to www.orbisadvisors.com and sign up for the free 30 day trial. There are new and exciting tools being added to this site just about every week. It will soon have a backtesting feature which will allow you to test the buy/sell signals over any period of time. A test on one stock showed that if you had traded the buy/short signals over a five year period, you could have turned $10,000 into $150,000...and that wasn't using options...just buying/shorting the stock. Also...if you are making money with these recommendations, use some of that money to take the other courses we offer. We have an Advanced Option Strategies course that teaches you option spreads and hedges. I also just started an Elliott Wave course that takes you into the psychology of why the market moves the way it does. You will learn to see advanced patterns and cycles that will almost make you feel you can predict the future...I did say ALMOST, didn't I? This analysis is what helped me predict and recognize the crash last September (of 2008). I will have an evening Elliott Wave class available in January. If you are interested in any of these additional courses, please contact your enrollment advisor or e-mail me at jerry@myoptionmagic.com.

SCROOGE

Leave it to me to find a reason for the market to go down during the start of the holiday season here in the U.S. We'll start by looking at a weekly (longer term) chart of the SPY (S&P 500). The latest rally brought us to the 50% retracement of the move down from October 2007 to March 2009. This Fibonacci retracement is in the same area as the downward resistance line (black line on the chart). If the market isn't going to rally into the end of the year, this would be the place for it to start moving down. The problem with this analysis is that too many traders are looking at this area and are expecting it to act as resistance. We are at another critical intersection in the market. The dollar is testing a support level (see UUP), gold is showing signs of resistance (I'll talk about this later), and the VIX is retesting its lows around 20.25. I'm not suggesting that anyone go out and buy puts on the SPY right here, but it is another reminder to build you cash. I was stopped out of AEM today on the intraday rally. I knew that might happen. I normally like to have my stop above (or below) the 50 day MA, but this trade didn't allow that (a move above the 50 day MA would have all but wiped out my option value)...unless I decided not to use a stop. I did use a stop and was stopped out when the stock hit about $64. I will look to re-enter in the next day or so if gold starts to sell off. I still like this pattern and I still think gold is about to correct. Look at the gold charts that are in strong uptrends. They all have a very bearish candlestick. They all gapped up today, only to fade downward the rest of the day. In other words, they were down for the day, but still up compared to the close on the day before. In almost every example of this type of price action, the stock will go into a correction. In some cases immediately, and in others a short time later. If we "fill in" the gap tomorrow (or in the next few days), it will be time to jump back in. I didn't get stopped out of all my gold trades. I'm still in HMY and SA.

WHAT ABOUT GOLD???

I got a few e-mails about my comments on gold yesterday. In my haste, I didn't specify the context I was referring to. I see a possible short term pull back that could cause gold to come back to the 1010 - 1040 area (101 - 104 on the IAU) to retest that previous resistance. This would create another buying opportunity on gold. Ultimately, I think that gold could go to around 1300 to 1400. This is a good area to take profits and wait for another good entry. If you don't want to sell your long term hold position on gold, you could consider using a protective put on the IAU or GDX and ride out any correction. Also, take a look at how far gold is from its 50 day MA (see chart 2). It hasn't been this far away from its 50 day MA (above it) since early 2008 when it made a nasty correction. I might be early in my prediction, but it is a good area to start lightening up on your gold positions. Also, I've seen nothing but "invest in gold" commercials on CNBC. As a contrarian...when I see that, I start running for the exit. Now I don't want to try to buy puts a stock that is still in a strong uptrend. That is risky...but what if I can find a gold stock that is already in a downtrend and could be set up for another move down? That pattern is AEM. It is hitting resistance around $63. It is also at a 50% retracement of the last move down. The stock is below the 50 day MA and the 50 day MA is moving flat...or slightly downward. I like the reward to risk on this pattern because you can stop yourself out if it breaks above all that resistance...like around $64. The downside initial target would be around $52-$53. That could be as much as a 3 to 1 reward to risk! In other words...if you win, you are looking to make three times what you would lose if you are wrong. We know that we can still be wrong...but with that type of reward to risk, we only need to be right 30% of the time to make more money than we lose. Yes that is right...just 30% of the time!! For a safer entry, you could look for a closing price below the 10 day MA. Other nice bearish gold patterns include HMY and SA.

SUCCESS STORY

Jerry,

Based on your recent recommendation on IPI, I have bought Nov 28 calls at 20 cents and sold it today at 55 cents.

That is 100%+ gain in one day turn around. That is a direct contribution from your blogs. Keep it coming.

I appreciate it very much.

Kenneth N.

MARKET PAUSE

The market paused a bit today after a nice run over the last couple of weeks. I still think we could move a bit higher, but I would recommend building your cash. IPI finally moved today...as did all the agricultural chemical stocks. I'm glad I gave the pattern a bit more time. The volume was above average, so it could continue to move higher over the next few days. I don't like an entry right here. If you missed the move, you missed the move. Be patient and wait for either another opportunity to get in or an opportunity with another stock. Watch out on any gold trades that you are in right now. It looks like gold could be topping out and might start a correction soon. A correction in gold would probably be accompanied by a correction in other commodities as well. I will be lightening up my trading through the end of the year. I'll try to post patterns when I see them, but I might not be looking at as many charts as usual over the next few weeks. If you see a pattern you like...or you wonder if it is a good pattern...send it to me in an e-mail and I will look at it. If I like it, I will post it on the blog and give you credit for the find.

BUILD CASH...AGAIN

We broke out today on the S&P 500. I told you last week that if we broke out, I would look to build cash and cut back on the trades. There is a chance we could rally into the end of the year, but we are approaching some nearer term resistance around the 1120-1125 area in the S&P 500. This area is a 50% retracement from the move down starting on 10/11/07 to 3/6/09. This area is also about the same distance away from the 50 day MA where other corrections have started over the last few months. There are several divergences, starting with the RSI and MACD. Today's volume was decent, but the earlier moves were on lighter than normal volume. I exited most of my positions on AAPL and AMZN. I will probably close out the entire trade on the next move up (or down). I'm holding on to APA for another day or so. I'm interested to see if the dollar (UUP) breaks support and heads lower. If APA rises on a break of the dollar support, then I will probably stay in the trade. If APA doesn't rise on the break of the dollar support (or if the dollar rises), I will probably exit the trade. I liked IPI last Thursday (when it broke above its 10 day MA), but these last two days have caused me to worry a bit. It's possible that IPI is completing a "B" wave of a bullish ABC pattern. If this is the case, then it will probably break below its 50 day and 200 day moving averages before it completes the "C" wave of that pattern. I will keep the stop just below the 50 day MA. It wouldn't shock me if this makes one more move down. The more it continues to move sideways, the more likely it will break lower. I will keep my eye out for some new trades to post, but I still recommend that you start to build cash and take some profits off the table. Any new recommendations will include a caution to use smaller amounts of capital.

SUCCESS STORY

Hi Jerry,

Just wanted to share one of my recent successful trades.  Bought calls in the Nasdaq index valued at $1.7 per contract on November 4, 2009 and sold on November 11, 2009 for $2.89.  A gain of 70% in 7 days!

Justin B.

SUCCESS STORY

Hi Jerry,

Your course has been great. My success story: I bought aapl jan.190 on 11-09. I sold half on 11-11 for a move of 5.32, 36% gain.

I'm looking forward to your next course.

Roy

OIL DROPS

I haven't had much of a chance to post over the last few days. Tonight's posting will be brief. I hope to be back on track next week. We are working on several project which are taking up a lot of time. The drop in oil caused most of the weakness in the market today. I like the drop in oil. It could open up another nice trade on APA, APC, and EOG. I would really like the market to pull back a little bit more...maybe 1080 on the S&P 500. There are a lot of stocks that have pulled back a bit, but they need to pull back a bit more to create better reward to risk. I don't know that I would buy into a breakout in the S&P 500. The last few times the S&P has broken out to a new high, it has gone into a correction a short time later. If we breakout in the S&P 500 tomorrow, I would look to begin a move back to cash. I like the pattern on IPI. I really like the reward to risk. You could place stops below the 50 day MA or the 200 day MA. The first upside target would be at around $29. Further weakness in the market or in commodities could bust this pattern...or at least delay it, but it is one of the few patterns that I like right now.

SUCCESS STORY

Jerry;

I have a couple of recent success stories:

1. RDY: Dec 17.5 calls: entered Oct 23; sold 1/2 of positions with a gain of over 55%; remaining positions are currently up over 85%

2. IBM: Jan 125 calls: entered Nov 4; currently up about 50%

Thanks for the great course and skill building! I am looking forward to the next course

John M.

THE GENERALS ARE LEADING

The DOW broke out today to a new 52 week high. The S&P 500 and the Nasdaq also had good runs today. I'm still a bit concerned about the volume behind the moves, but you can't ignore the price action. The generals (larger companies) are definitely leading the rally. I don't know that I would chase the move here. If you didn't get into any bullish positions on Thursday or Friday (or even early this morning), I don't recommend chasing it right here. Wait to see if there is a pullback tomorrow that you could buy into. If a pull back doesn't occur, wait until there is a better reward to risk for a trade. You could keep an eye on the financials. They moved up big today after not participating much in the market move on Thursday and Friday. Some of the stronger patterns include COF, AXP (although I would wait for a pull back), MS, and USB. I'd include GS on that list if it can get back above its 50 day MA. My "A" trades have been doing well...AAPL, AMZN, APA, and APC. My puts have lost value, but they provided a nice hedge for this latest move. The market is in a shorter term overbought condition, which could mean that a short term pull back could happen soon. I've noticed that a lot of pull backs within this latest uptrend have occurred intraday. In other words, the market could pull back 50 points at the open, but end up rallying 100 points before the end of the day. This is an advantage if you can watch the market throughout the day...but also a big disadvantage if you cannot. CVX has a nice ascending triangle forming and could continue to move up if it break above that resistance. There are a lot of fund managers that need this market to continue to go up through the end of the year. This doesn't mean that it will, but it does mean that there will be some buying pressure going into these last eight weeks. I'm still amazed that this market continues to go up despite some of the technical breakdowns. If anything, you have learned how important it is to trust the trend...even when you think the market should be doing something else.

FLIP FLOPPER

Yes, I am. As I've always said in my classes...flip flopping in politics is deadly, but flip flopping in the market is absolutely necessary. You've got to be willing to change an outlook based on the clues that are coming in. Our job is not to predict the future, but to analyze the probabilities. In other words...I need to be careful not to trade according to what I HOPE to happen, but rather what is ACTUALLY happening. Today we had a huge move up. We broke back above the 50 day MA and the 10 day MA on the S&P 500. Since the trend of the market is still considered up, this move back above these moving averages indicates a break back above two resistance areas...which is a characteristic of an uptrend. I will now state my dilemma and my solution. The dilemma is that I still don't trust this rally. The volume was pretty light despite the big point move. If the buyers were fully behind the move, the volume numbers would have been considerably higher...or at least higher than the last few days. Although I don't trust the rally, I can't completely reject the other clear bullish signals that the market gave today. In other words, I've got to be careful that I'm not trying to project a "hope" or "wish" on the market. Again, you can see why even the most brilliant traders are a bit confused right now (keep in mind...with that comment...that I wasn't necessarily including myself with the "brilliant" traders). Here is my solution to my dilemma. A few days ago, I bought some put options on the market. I didn't buy them at the market low. I waited until the market rallied up a bit (possible bearish ABC pattern) before I bought them. I also decided not to use a stop loss on those puts. Because I bought them when I did, I still have a chance that they could go up in value if this rally sputters and we continue lower. With today's break back above the 50 and 10 day moving averages, the current trend signals are saying that I need to be buying calls or buying the stock. What I did today (near the close) was to buy some calls on stocks that didn't break below their 50 day MA on this last pullback. Stocks like AAPL, APA and APC (although that rally in the dollar sure scares me), and AMZN. What I am doing is using those put options (that I bought earlier) as a hedge. If we rally to a new high in the market, I should make money on the calls...more than enough to offset the loss on the puts. If this is a suckers rally and we drop much lower, I will lose money on the calls...but the money I make on the puts will just about get me to breakeven. On the surface, this would look like I can only make money if the market rallies from here. This is not necessarily true. If we break back below the 50 day MA for a third time, I will probably start buying a lot more puts...thus increasing the leverage to the downside. This would allow me to be profitable if the downward move does continue...which it should at that point based on what would be a triple break of the 50 day MA support. If all this seems confusing, just stay in cash right now. This is a dangerous market for big bet trades. Sit out a while until things settle down into a clearer trend. When you take on multiple positions like I did, you need to have a clear game plan and an understanding of just what you are going to do if the market breaks one way or the other. I'm not worried about what the market will do in the next week or so...as long as it moves one way or the other. I can only get crushed if we stay in this range and keep moving sideways...which is always a possibility. I do have a plan for that possibility, but you will need to take course 2 to learn those adjustments. I don't think this is a market that should be traded by beginners...at least not right now. Just about every move needs to be hedged. If you don't know how to hedge a move, your best bet is to be patient and sit out for a bit. This market has some of the best technical analysts shaking their heads in confusion.

WHAT A FALL INTO THE CLOSE!!!!

I was in Jesse Webb's office about 45 minutes before the market close today. I remember glancing at CNBC on his T.V. screen and seeing the Dow up 120 points. We had a discussion on some work related stuff for about 30 minutes. With 15 minutes to go before the close, I glanced back at the T.V. screen to see the Dow only up about 40 points. That was almost a 100 point drop in 30 minutes!!! For most of the day the market (S&P 500) flirted with a break back above both the 50 day MA and the 10 day MA. The sell off at the end of the day confirmed the sellers strength, but I can still see a strong battle taking place right now. As you know, I am currently bearish on the market. I did not like the second break below the 50 day MA that took place last Friday. You might even consider today's move a third break below the 50 day MA since the market was above it for most of the day. Although we have rallied since last Friday, the price action has looked a bit choppy while it has been rising. This is often a pattern setting up for another move down. On the other hand...I was watching to see if we could close back above the 50 day and 10 day moving averages. The market has reached some shorter term oversold levels and could bounce up a bit right here. It will be interesting how the market reacts to the Fed decision to hold its course on interest rates. The bullish view would be that the interest rates will still remain low which should continue to help stimulate the economy. The bearish interpretation would be that the Fed still thinks the economy is in trouble. Either way, the dollar will probably continue to get hammered. This could be good for potential bullish trades on commodities such as gold (GDX and AUY) and oil...or natural gas (which is the trade I like right now). APA and APC are still rallying off their 50 day MA. I'm still not sure if this is the beginning of another move higher or a "B" wave (suckers rally) that is setting up for one more move down. This is a similar pattern that is showing up on a lot of stocks right now. This only adds to the uncertainty of the next expected move of the market. Has the correction completed?...or do we have one more move down? The RUT and the Nasdaq look very weak while the DOW has yet to break below its 50 day MA. Who is leading? This is why it can be common to have conflicting opinions among a lot of good traders right now. Although I always reserve the right to change my mind from day to day, I've placed my bet already...I'm currently betting on another move down. However...if we show some strength in the next few days...or more importantly, if we get confirmation of a possible bullish move...I will be ready to trade that move as well. The VIX has pulled back a bit with this latest market rally, but it has pulled back with a possible bullish ABC pattern. It also rallied in that last hour off of a previous support level at about 26.60. I will be watching to see if it spikes tomorrow on a downward market move, or breaks that support area on any market rally. Clues, Clues, Clues...we'll keep looking for the clues.

GOLD RULES THE WORLD...AND NOW INDIA AS WELL

Gold and other commodities had nice moves today as India purchased 200 tons of gold from the IMF. I'd be happy with 200 pounds of gold...or a call option trade on BNI before Warren Buffett announced his takeover today. Those were some nice moves. I panicked a bit when I saw how strong the Dow Transportation index had come back today. It looked like it was leading the market down. Then I made the connection with the Warren Buffett news to acquire BNI. All the railroad stocks gapped up off of that news. Which stocks make up the Dow Transportation Average? BNI, CSX, NSC, and UNP. Four of the 20 stocks are directly or indirectly related to the Warren Buffett acquisition. I would completely ignore that move on the Dow Transports. I think gold could go higher, but I just don't want to buy after a move like today. I'll look to see if it pulls back a bit in the next few days. I still like my put option trades on the SPY, DIA, and RUT.

SUCKERS RALLY

Today's move is exactly what I wanted to set up some put option trades on the SPY and DIA. I also set up a bearish trade on the RUT (Russell 2000). For those that are worried about getting into a counter trend trade, stay in cash for the next few days. Look at an intraday chart on the SPY. Notice the choppy and rising price behavior. This looks to be setting up for another move down. I like to buy puts on these types of rallies because the options aren't usually inflated from the fear that is usually generated from a move down. I took smaller positions because of the whipsaw nature of the market over the last few trading days. I'm not using a stop on these trades. Instead, I used my money management. Here is an example. Let's say that you planned to buy 4 contracts of an option at $2.50. Your total cost would be around $1,000. Now let's say that you planned on using a 50% stop. This would mean that you would stop yourself out of the trade at $1.25. That would represent a $500 loss. If you were willing to lose $500 on the trade, why not just buy $500 worth of the option and not use a stop? So in this example, I might just buy 2 contracts instead of 4 and not use a stop loss. This is what I did on some of these trades today. I feel that over the next few days (or maybe even weeks), we could move lower. However, we could also have some whipsaw days like we saw last week. By not using a stop, I would protect myself from getting stopped out on a whipsaw day...only to see the market continue to move lower. At the same time, if I am wrong about the downturn of the market, I won't lose very much money because I have already defined my risk.

ROLLER COASTER

The market sold off hard on Friday creating a pretty good three day roller coaster. We didn't get the confirmation that I pointed out last Thursday. There is a real battle going on right now between the buyers and sellers...and with Friday's move the sellers are winning again. These types of moves can be frustrating, but there is really no way to predict them in the short term. If there is someone who accurately predicted the last three market days, they are lucky...not brilliant. I will probably look to buy puts into any rallies that may occur in the next few days...unless we get another 200 point rally on Monday. If that were to happen, I might just sit out for a few days until the market decides which way it wants to go. Friday's move burned a lot of professionals who bought back in at a panic after Thursday's rally. They won't be as anxious to do that again...which means that the market could really start to sell off hard if it opens lower on Monday. I usually don't like to buy put options during the drops because the options tend to be more inflated. I like to wait for little rallies to take place. I also like to just trade the market using the SPY, DIA, or even the QQQQ. Unless the market trend is down, I usually don't spend much time looking to buy put options on individual stocks.