THE RALLY FAILED

Here is an unauthorized copy of a picture of me near the top of the "Ragnar" mountain from my race two weeks ago (I haven't purchased my pictures yet. If anyone from Flo-Foto is seeing this, I will buy them soon!) I was about 100 yards from being done and this was the flat part of the climb. The toughest part was behind me. I probably look beat up with the tape and foot brace, but it really wasn't that bad. Somebody remind me next time not to wear all black in 95 degree heat while running straight up a mountain! And yes...I'm doing it again next year! There's your proof that I'm not mentally stable (like you needed any proof).

Today was a great day to enter into new put option trades on the market. The early rally sucked out the option volatility that was created by Tuesday's drop. In other words, many of the put options were undervalued. We knew that the small market rally was not likely to hold for long. The end of day selling coupled with the significant increase in volume during the last hour of the market showed us that the selling could kick into high gear soon....yes, I'm saying that we haven't seen "high gear" yet. We could likely gap down at the open tomorrow. If you haven't gotten into your put option trades yet, you might need to wait. Don't chase the market if it gaps down. We will get plenty of opportunities to get in over the next few weeks. Don't force a bad entry into a trade. For those that were waiting for the market to dip below 1040 before they were planning on getting in, today was your day to enter. It was a perfect day to enter. There is significant news coming out throughout the world markets Thursday and Friday. This weekend is a holiday weekend. The markets will be closed Monday due to the 4th of July holiday. This could create some heavy selling prior to the weekend. Normally the days before the 4th of July are historically bullish. This might be a year when that trend isn't followed. If the markets do remain flat on Thursday and Friday, use that as an opportunity to build your bearish positions. We've had a lot of big moves down on Tuesdays lately. Maybe we see another one next week. At the time of the posting, the S&P futures are around 1020. If that holds through the night, we will see a decent gap down at the open tomorrow. Send me some success stories if you have had some good recent trades. I'm still waiting for my gift certificate for a Hawaiian vacation (my wife said she has to be included)...who is going to step up to the plate. We could do some early morning trades before hitting the surf. Make that near market close trades (the market closes at 10am in Hawaii...it opens at 3:30am I believe). I could also use a new Ipad or laptop. Okay now I feel like I'm making a Christmas wish list for Santa.

WARNING ON LEVERAGED ETF'S

Here is an article that I originally posted on the blog in March of 2009. It a warning about leveraged ETF's. I recently recommended the FAZ which is a leveraged inverse ETF for the Financial sector. I still think it is a great shorter term call option trade, but I think everyone needs to read this article before getting involved in leveraged ETF's. Here is the link:
http://news.morningstar.com/articlenet/article.aspx?id=271892&pgid=etfarticle

Watch 1040

This is one of my rare intraday postings. We are near the 1040 area in the S&P 500. This is the key support area. I think we will finally break below 1040. If we don't break below it today, I think one of two things could happen. We could get a little bounce as buyers try to anticipate this area acting as support. Any rally should be considered as a chance to enter put option trades. The other possibility is that we gap down below 1040 on the next trading session. This could ignite some panic in the market and we could sell off pretty hard. I'd like to add to my positions when the market breaks below 1040, but I might not get a good chance to do that. I might need to add to my positions today. I might wait until the end of the market to see how things are setting up. I expect the market to continue the downtrend through the end of the year. There will probably be some rallies along the way, but they will likely be similar to this last one. Make sure you give your trades plenty of time.

OUTSIDE WEEK

We completed an "outside week" last week. This is a technical pattern that is seen on the weekly chart. In this pattern, the stock reaches a higher high and a higher low than it did the prior week. The future direction of the stock depends on where the stock closes. If it closes the week near the high, it will likely go higher. If it closes the week near the low, it will likely go lower. The market closed the week near the low last week. This indicates the continued weakness of the market. The volume has lightened up over the last two trading sessions. This could just be a pause for another move down, but I will continue to watch this carefully. I've liked all the bearish signals that I've seen over the last week, but I'm still concerned about the volume. I'd like to see a significant volume spike on the next downward move in the market. If we happen to get a decent move up on significantly higher volume, I will be concerned that we could get a short term rally. Q2 ends this Wednesday. We might not see any significant movement until after that date. I've gotten a lot of e-mails related to July options. I've kept mine because I was willing to risk the entire amount. If you risked a significant amount on the July options, you might need to change your plan for the trade. You might want to use any drops in the market to try to recoup some of the losses or try to break even on the trade. You might still be able to profit if we break below 1040 on the S&P 500, but you might not want to risk your entire account on that possibility. I've preached money management over and over and this situation is an example of how important it is. The key to your success is your ability to survive. You can't overcome a draw down if you don't have any money left. It is possible that we are in the beginning stages of a huge move down. I've targeted 950 on the S&P 500, but it could possibly be much lower than that. I'm very bearish through the end of this year. Don't get wiped out of your account by July expiration. If you have to get out of the July options at a significant loss, you could still possibly make it up from July to December if the trend continues lower.

VOLUME INCREASING

The market didn't drop much today, but the volume has increased each day for the last three days. With today's bad housing numbers, the sellers are gaining strength. We might see a steady drop to 1040, but the selling should increase dramatically if we move below 1040. There are bearish patterns on most of the financial stocks including JPM, BAC, AXP, PNC, C, and WFC. For turbo charged results, try call options on the inverse leveraged financial ETF called the FAZ. Some tech bearish plays include AMZN, GOOG, and EBAY. Just to be clear, these would be put option trades. Always remember your money management. Never put yourself in a position where one or two losing trades wipe out your entire account...especially when you are trading options!

VIX SPIKED TODAY

The VIX spiked up today as the market sold off. This could be the start of the move down. The gap up this morning was strong enough to be that last push higher that I mentioned last night in the blog. We would still need some confirmation. We would need the selling to continue tomorrow and the VIX to continue to move up. We would also need to see the volume pick up. The volume was still fairly light. This is actually a good place for a trade. If the market opens down tomorrow, you could buy your puts and place a stop above today's high. If we move above today's high, you would want to be stopped out of the trade. It ends up being a very nice reward to risk. We can't control the direction of the market, but we can often control the reward to risk of the trade. I actually set up some Bear Put Spreads near the close today. It is more of a hedged position. I might buy some puts if the market starts selling off tomorrow.

ONE MORE PUSH HIGHER?

This is what I kept asking myself on the last part of my race, but I will talk about that later. With the continued sideways price action of the market over the last few trading days, the probability is getting stronger and stronger that we will get one more push higher to complete this "C" wave of the bearish ABC pattern that I showed you in the last posting. This last move up could reach the 50 day MA which is currently around 1140 on the S&P 500 (1139.15 to be exact). I bought some call options on Friday morning (before I left for my race) in order to try to take advantage of the expected short term move up. If the market opens near its Friday close, you could try to get into some calls for a short term play. This would be a very short term trade. If the market gaps up on Monday, don't try to chase it with any bullish trades...especially if it is close to its 50 day MA. If it gaps up on Monday, wait until this last move has completed and the market starts to turn down. The key signal will be a spike in the VIX. If this happens, you can do one of three things depending on your level of risk. 1. You can sit on your current positions and wait until the move down makes them profitable. 2. You can buy more puts (once the spike in the VIX confirms the sell off) and make money on the move down. 3. You can hold onto your current positions and add to them when the S&P 500 drops below 1040...which was the original point that I said to add to your position. In Elliott Wave analysis, you often come up with a Primary wave count and a few Alternative wave counts. The original call for a move down was based on a Primary wave count. That is why I encourage the students to get into bearish trades and take advantage of the move. Since then, the market has followed the Alternative wave count which allowed for a longer correction process. Both counts point to another big move down, but the Alternative count required a bit more time to get there. The problem is that you can't know which count is playing out until certain rules and levels get broken. This can sometimes test your patience. I don't place all my faith in these wave counts. I will also look at other contributing factors that might either back up the wave counts or possibly show other possibilities. What I have said all along in this bear rally is that the conditions haven't yet showed me that the market wants to go higher. In other words, it hasn't shown me that this rally isn't more than just a rally within the downtrend. Many of you might be impatient, frustrated, or even mad at me because we haven't had the move down yet. I'm going to ask you to trust me. Not to trust me that the market has to go down...no one can perfectly predict the direction of the market. Trust that I have analyzed the probabilities correctly and that those probabilities point to another big move down. If my analysis proves to be wrong and the market reaches a new 52 week high, I will gladly accept your wrath. If I prove to be correct, I expect your apologies for doubting my ability to read the probabilities of the market...and I'll expect that vacation to Hawaii so that I can recover from this race I ran this weekend. By the way, the race was fantastic. It was from Logan, Utah to Park City, Utah...188 miles (no I didn't run all 188). I ran about 15 miles in all (three different relay legs). My last leg of the race was a 4 mile run up the "Ragnar" hill which was a rise in elevation from 7,233 feet above sea level to 8,864...which is the top of the Dear Valley resort for those of you that have skiied in Utah. That's 1,631 feet in 4 miles! Yea, it was tough and yes, I did end up walking part of it. I can barely walk today and I'm sure it will be worse tomorrow. I've had a bad foot injury so I wasn't able to train as well as I wanted to. I got a cortisone injection on the morning of the race and just toughed it out. We finished the 188 mile race in just over 33 hours. I will say that the race route is one of the most beautiful in the world. If you ever want to take a fantastic scenic drive when you come to Utah, look up that race route using the web address I gave you in the last posting. Let's have a great week!

UPDATE

I will be out of the office tomorrow due to my race. If you are interested in seeing what race I am doing, go to http://www.ragnarrelay.com/wasatchback/index.php. I will be running leg #10 if you want to see what pain I am in for. Many of you are experiencing another type of pain...the pain of a position that is underwater. You may be tired of me saying it, but this is still a correction within the overall downtrend of the market. I will post a chart of the SPY. Notice the bearish ABC pattern. Notice the Fibonacci confluence levels. Notice the declining volume on each of the moves higher. Now the fact that the market has moved sideways over the last few days indicates that there might be one more move up before any significant decline might begin. It doesn't mean we can't move down tomorrow, it just means that the price action indicates a higher probability for at least another push higher. I've got the 112.60 area targeted because of the confluence of the .618 retracement and the 1.272 projection. It could go a bit higher than that, but that is the area I am looking at. We also have the 50 day MA as a possible resistance target. Nothing has changed as far as the expectation for a big move down. It is now just a matter of time. I know there are those of you (including myself) that have some July options that are causing you some concern. I don't yet see a reason to get out of them and I'm looking at Monday or Tuesday of next week to decide if I want to try to roll them out to August. I didn't use a stop on these options so I am still willing to lose the entire amount on this trade. Many of you risked too much of your overall account on these positions which is why you are so stressed out right now and probably directing your anger to me. I will continue to stress the importance of following what I have (or will) teach you...especially when it comes to money management. I have tried to warn you over and over to make sure you manage your risk. Don't mistake my confidence in an expected move as a reason to abandon sound money management principles. No one knows exactly what the future direction of the market will be...no one. We can only look at probabilities and manage those probabilities. What you risk in the market is one of the few things that you can control. Anyway, have a good weekend and wish me luck.

OUT OF TOWN

I will be out of town on Monday, Tuesday, and part of Wednesday. I will try to update the blog if anything significant happens. I am still expecting the market to rally a bit further to complete this bearish correction. We should start to move lower sometime this week. I know I sound like a broken record, but these corrections can sometimes take a couple of days or they can sometimes take a couple of weeks. I know many of you are nervous because you have July options (me included). I'm going to wait until this Thursday or Friday to roll those out. If we start to get a bit move down, I might just hang onto them for another week. You can e-mail me over the next few days, but keep in mind that I am on a family vacation which usually means no work! But...with the possible importance of this move down, I will have special permission to do a few things...if needed. The plan (as usual) is to pay for the vacation with a trade. Let's hope that the magic of Disneyland helps all of our dreams come true this week!

LOOKS LIKE WE'RE WAITING

I said yesterday that if we moved above Wednesday's high (1077.74 on the S&P 500), we would probably have a bit more correcting to do. Well...we're above 1077.74. The likely movement is a rally up to the 1100 to 1115 area to retest that resistance. The market is in a range right now between about 1100 and 1040. We might not have to wait very long. We are only 14 S&P points from 1100. We could hit that tomorrow. If the decline starts after that, we could possibly break below 1040 in the middle part of next week. Many of you have e-mailed me with concerns about your July options. I think they are still fine as long as this market doesn't continue too much longer in this sideways range. If they are still underwater by expiration Friday next week, we could look to roll them out to August. I know it's been tough to be patient, but sometimes the market will get caught in these sideways corrections before the move comes. There is really no way to perfectly predict when the move will take place. We can only analyze the probabilities. I will say that the technical condition of the market is still pointing to the downside...despite the near 300 move up today. If I see any change to the bearish outlook, I will make sure I post it on the blog. Watch for the 1100 to 1115 area tomorrow. If we happen to move below today's low, the strong expected downside move will be back on the table....although it would still need confirmation with a move below 1040. Have a good weekend.

ARE YOU READY????

We've been waiting and waiting and waiting. I think we are very close to our massive sell off. Are you ready to make money? For those that have put off an entry into this market (from the bearish side...put options), this might be your last chance to get in before the big move down. I'm not talking about risking everything on it, but at least getting positioned to make some money. Many of you want to take other courses from me...this could be your chance to make the money to do it....to learn Elliott Wave analysis which I have used often in the last few weeks. The key areas to look at tomorrow are the 1077.74 (today's high) and of course the 1040 area...both on the S&P 500. If we move above 1077.74, we might have a bit more correcting to do...yes, more waiting. If we move below 1040, we'll have plenty of money to make. This next expected move down should be the biggest since this downtrend started. If we get it, I expect many success stories...not to mention an all expense paid trip to Hawaii to recuperate from all these late night blog postings. I've been mostly talking about trades in the SPY, DIA, and QQQQ. If we get the kind of move I think we will get, you can just about trade anything bearish (that's put options for you beginners) and you should make money. In fact, you can often make a higher percentage trading the individual stocks. My bet is that the big money on the move down will be in technology. These stocks led the rally for most of last year and for the most part they have held up fairly well during the first moves down. However, the Nasdaq was the only major market that was still down yesterday as the Dow and S&P 500 staged the late session rally. The Dow was up over 100 points, but the Nasdaq was negative? That can't be ignored. The Nasdaq 100 (NDX) had the biggest percentage move down today (almost 1%) compared to the major indexes. Chip stocks like INTC, CREE, MRVL, and BRCM could be nice put option candidates. If you are brave enough, you could try the Big Boys like AAPL, GOOG, AMZN, and BIDU. Try to wait for confirmation (below 1040 on the S&P 500). Otherwise, you might be in a very stressful situation as you continue to wait for the big move. Again...watch the 1077.74 and 1040 areas for confirmation. Aloha!

SUCCESS STORY

Jerry; Thanks for the double. Bot 14 RST 25 PUTS for 1.70 and sold for 3.50 today. Not bad for 5 days wait.

Ron

ALL EYES ON 1040

We are watching the 1040 area in the S&P 500 very carefully. If we break below this low, we should start to fall very quickly. The market managed to rally up a bit at the close, but a closer look (15 minute chart) shows a picture perfect bearish ABC pattern that formed with today's price action. This would suggest that we could start selling off tomorrow...if that does end up being a bearish ABC pattern. There is still a possibility that we could continue to chop sideways a bit longer, but each failed rally gives the bears more confidence. I think if we reverse today's late session rally early in tomorrow's trading, we will start to see some huge panic selling. There are tons of head and shoulder patterns developing in the market place. I still think RST has more downside left in it. I might be a bit early, but I like put options on AEM. I think gold is very near a top, but it might have one more push up. The pattern on AEM would suggest that it has already reached its top and should start to move down. You could wait for a move below its 10 day EMA as confirmation. Look at August expiration to give yourself enough time in case I'm early on the pick. There are so many individual stocks that are at a support area. If the S&P 500 breaks 1040, most of these stocks will break their support and we could see a "flash crash 2" as computer programs start to trigger sell orders and stop orders. If you already know how to use a contingent order, now would be the time to use it. At the time of this posting, the China markets were up about 1% and the European markets were also up around 1%. Japan was down about 1%. If the European markets hold on to this rally, we could see the U.S. markets open higher. That will be fine because we won't look to add to the positions unless the 1040 support area is broken.

SUCCESS STORY

Jerry -Thanks for your communication last week I moved my stops
up on both puts pretty tight and was patient until mon. morning I was
stopped out with a $2900.00 profit on a $7000.00 investment for 10 working
days !! That is super stuff for my first live trade and want to thankyou for
your help and time you take to respond to your students !--Dave B.

SUCCESS STORY

The market decline of Friday 4 June -- one you have been forecasting for some time -- proved to be a profitable one. Across several index puts I realized a one-day gain of 59.5%. In actuality, those same puts were 30.2% in the red after Thursday's trading and went to 11.5% black on Friday proving that your "stick to the plan" will work if you exercise patience. My primary mistake was buying some puts too soon during the recent upward correction, but I got lucky this time. I still need to learn to wait for better confirmation and resist the "if I don't act now, I'm going to miss it" temptation. Your sage advice is soothing to my anxieties -- I am learning to be a better trader.

David D.

BEARS MIGHT NEED TO BE PATIENT

So much for saying it wasn't probably that we would get another move up. It looks now like we are in the "C" wave of a bearish ABC pattern. This became clear early on today as the market began to stage a strong rally. The volume is still pretty light and we've seen these rallies before in the last few weeks. The 1100 target area should be broken tomorrow. I anticipate that the market will have another up day tomorrow. I'm now looking at the 1120 area as the next target. I still think we are close, but the expected sell off might now happen sometime next week. A rally to the 1120 area would fill in a gap on May 20th. It would also be near the .618 retracement. There is an outside possibility that the market could rally to around 1130 and still get the downward move we are anticipating. I won't abandon the bearish scenario until the S&P 500 reaches about 1150. If we happened to rally above that point, I would probably move to neutral or possibly turn bullish. I know I've said it a million times, but I'll say it again...trading is not about predicting the future. It is about managing probabilities. I'll also emphasize again how important your money management is to your success. The big moves always end up testing your patience. If you can pull up a 60 minute chart (hourly chart), you can see the "C" wave of that bearish ABC pattern. You can also project the length of wave A from the end of wave B and you can get an idea how far this wave C might go. If you are brave enough, you could try to play some very short term call options. I don't think I would try that if the market gaps up at the open tomorrow. I still think the market wants/needs to make another move down. We will just need to be patient for the next day or two...or possibly three.

NOT MUCH TO ADD

Everything still looks to be on schedule. The price action today was very weak. If the selling starts tomorrow or Thursday, it should start to accelerate very quickly. I see a possibility for one more move up to around the 1100 - 1120 area, but right now that doesn't look very probable. Watch the news closely tomorrow...particularly in the first few hours while the European markets are still open. Any significant bad news could really start the sell off.