NOT MUCH NEW TO SAY...1131 IS THE KEY

We are very close to the 6/21/10 highs on almost every index. A move above that point would cause me to become more bullish about the market. A move back below 1040, would signal a massive sell off could be underway. There are so many bearish ABC patterns out there with deep retracements. For the safest bearish trades, wait until the market can get back below its 50 day MA. For more aggressive trades, get in now and put a stop above the most recent high...the June 21st high for the most part. The market seems to be turning down at this important resistance area. What I want to see is a 100+ point drop down on the Dow with some higher than average volume. That would cause me to get very bearish again. GLD is working great so far.

WHERE DO WE GO FROM HERE?

You have probably heard good arguments for both a bullish outlook and a bearish outlook. I'm still waiting until one of my two targets gets hit. From a fundamental standpoint, it is easy to be bullish after the earnings reports that we've had over the last two weeks. From a technical stand point (the charts), things still look bearish. If you look at a few of the major blowout earnings reports recently...AAPL, INTC, and MS all gapped up at the open and ended up selling off at the end of the day. Even with a big rally today, none of those stocks managed to get above their recent highs. This could just be a post earnings let down, but it should concern you if your bullish. If your bearish, you really don't want the market to move above the 7/13/10 high (about 1100 on the S&P 500). It isn't the 1131 area I mentioned in past postings, but it could mean that we could rally up close to that area. For those that have had the ABC patterns class, it looks like we are either in a wave C of a bearish ABC pattern, or that we are still in wave B of that bearish ABC pattern. If we are still in wave B, then we are close to getting a wave C (of wave B) that would bring the market down close to the 1040 area on the S&P 500. Then we would likely have one more rally up to perhaps the 1120 to 1125 area before going much lower. This trading environment feels a lot like the summer of 2008. We chopped around sideways for several weeks and even moved above the 50 day MA. During that earnings season, there were many analysts that thought we were recovering from the market drop that occurred during the first part of that year. By September, we had the worst financial collapse since the Great Depression. Many top companies went out of business or were financially crippled for years to come. Today we have some similarities in the charts and in the overall sentiment...but we're not talking about companies going bankrupt this time, we are talking about COUNTRIES going bankrupt or becoming financially crippled for years to come! I hope that scenario doesn't play out, but I'm not going to drink the Kool-Aid from those same analysts that said things were getting better back in 2008. We saw how fast and far the markets can drop when the snowball starts rolling. I don't mind turning bullish, but I want the trend going in that direction first. My advice is to sit out the market for a few days if you are nervous or unsure. If you are playing the market (bullish or bearish), make sure you have identified your key exit points in case things don't go your way.

BULLISH...BEARISH...BULLISH...BEARISH

There was definitely some wisdom in yesterday's headline. The market looked very bearish at the open, but it quickly reversed and finished very strong by the end of the day. Normally I would say that the price action was very bullish, but I said that last Thursday and we had a 250 point drop the next day. For those that are losing money in the whipsaw, I would encourage you to sit back, wait, and watch the two key price points...1040 on the downside and 1131 on the upside. We could continue to slosh back and forth until we break above 1131 or below 1040. We could also continue to move back in forth until earnings season winds down next week. For those that want to rush out and buy AAPL calls tomorrow, a word of caution. Wait until the end of the day to make your trading decision. AAPL will most likely gap up at the open tomorrow due to a $7 spike up in after hours trading which followed their earnings announcement. The key will be whether or not it will move higher from there. INTC gapped up after their blowout earnings release last week, but it ended up selling off by the end of the day. If this happens to AAPL, it could lead to at least a short term decline in the stock over the next few days. If it can gap up and close higher than the opening price, this would be very bullish and would lead me to believe that it could test the 6/21/10 high. AAPL has managed to hold support around $242. If it drops below that point, it could move down pretty quickly. Gold futures are down at the time of this posting, which could lead to another move lower for the GLD. A lot can happen between now and the open of the market. Don't make any trades during the first hour tomorrow. I think it is possible that we could get the opposite of today's price action...namely a gap higher followed by a sell off into the close. I'm speculating here, but this is where the professionals start to play games with the amateurs...particularly during the first hour of trading. The professionals know that millions of amateurs will probably go out and buy AAPL at the open. Don't be surprised if it gaps up and starts to sell off.

PROCEED WITH CAUTION

Friday's move down signaled that the next move lower is probably underway, so why did I title this entry "proceed with caution"? Just look at my headline for Thursday's entry. The price action on Thursday was fairly bullish at the market close. It looked like there was some real buyers coming back into the market. Then Friday the market sold off and reversed the rally. With the strength of the move down on Friday, it looked like we could get some follow through today...but that didn't happen. The downtrend looks like is is starting another move down. Friday's sell off was on the 7th market day after the July 7th rally. I was pretty close on my prediction...unless we rally up past the July 13th high in the next day or so. I was off by about 28 S&P 500 points. I expected the correction to end around 1071, but we managed to go as high as 1099. The rally managed to turn the trading crowd from extremely bearish to extremely bullish...all in about 1 week. This shows that there really isn't much conviction in the market right now...even amongst the professionals. Everyone wants to justify their bullish positions based on some of the earnings that have come out along with the hold on the projected estimates. I thought that many of the companies would hit their earnings targets, but lower their forward guidance based on the possible slowing of the economy. No one has really lowered guidance. Some have even raised guidance. This would appear to be very bullish, but I saw the same thing happen around the Lehman collapse in 2008. Follow the trend of the charts. News can be manipulated or massaged, but the charts cut through all the spin. The trend of the market is down. We had an impressive rally last week, but Friday's move wiped out almost half of it. The Elliott Wave pattern still points to a massive move lower. The basic trend analysis that I taught you in Course 1 says that we should at least test the July 1st low. There is a pretty good reward to risk right now in the market. If you entered into put option trades over the last two days (or if you enter in tomorrow), you can use the 7/16/10 S&P 500 opening price of 1093 as a stop loss point. If we move above that point in the next few days, you would want to be stopped out of the trade. The initial downside target would be the July 1st low of about 1011. If we see another 200+ drop in the Dow over the next day or two, you will start to see the panic enter back into the market. Keep an eye on that 1040 area. If we move below that area, we might get another "flash crash" situation...although I don't think it would be that massive with all the new circuit breakers that are supposedly set up. I'm still bearish on Financials. I re-entered AXP on Friday after getting stopped out last Tuesday. I also have a position in FAZ (call option). There are a lot of earnings coming out this week which could cause the market to swing back and forth if the results are mixed (good and bad news). Gold is continuing its move down. The GLD dropped another dollar today. More and more people are talking about deflation rather than inflation. Over the last few months, I have been one of the few people saying that this market feels more like a deflationary environment rather than an inflationary environment. Don't get me wrong. I think there will be plenty of inflation in the future, but for now we will probably go through a period of deflation. In deflationary markets, commodity prices often get hit the hardest...especially gold. If the GLD breaks below 115 (support from the uptrend line connecting the 11/13/08, 2/5/10, and 3/24/10 lows), it should have little resistance down to 112. If it breaks 112, it should have little resistance as it moves down to about 102. There are many nice bearish patterns out there, but I will stick to my advice of "proceed with caution" until we can get back below the 1040 area on the S&P 500. If you do enter put option trades, use Friday's high as a stop loss point. Have a good Tuesday. Apple reports tomorrow after the bell. That should be an interesting earnings report. My prediction a few months ago of 200 to 210 on Apple may not look as crazy right now as it did back then. If I'm right on that call, I might get some of you to finally trust my opinion once in a while.

THURSDAY'S PRICE ACTION...BULLISH.

Today was actually looking like the end of the rally until the last 45 minutes of the day. That end of the day rally had some big volume behind it. The last two days has shown some real buyers entering the marketplace. Having said that, the Dow had risen 7 days in a row before today's 7 point loss. The one week rally has been one of the biggest in the last few years. Although the recent activity has looked bullish, the intermediate trend is still down. I'm still looking at the 1131 area as the point where I will start to turn bullish and the 1040 area where I will get more bearish. We are in a "no man's land" right now in the market. This explains why we are getting so much conflicting data. Some of the earnings numbers have looked great, but we were expecting good numbers. I expected to see some lower guidance for the upcoming quarters, but I haven't much of that yet. Keep in mind that we started to really get the negative news about the economy starting in April and May. It took about 4 months after the financial collapse of 2008 before we started to see the real economic effects. Although I'm still bearish, I know that the market doesn't care what I think. The market is not always rational. I don't have any short term forecasts for the market. I will continue to watch those two levels that I mentioned earlier. The excitement over the Goldman Sachs and BP news could help the market rally a bit more, but the market is overdue for at least a small pullback...if not a continuation of the downtrend. The futures are currently down a bit which could mean that the markets might at least open lower. July option expiration is tomorrow. Hope you don't have any July options. I have a few, but they are from some spreads that will be closed out tomorrow. Remember that weird things can sometimes happen on an expiration Friday. The market will often close a bit flat, but it has a tendency to swing back and forth throughout the day.

EARNINGS SEASON KICKS OFF WITH ALCOA

Alcoa earnings signal the beginning of "earnings season" which is still not as good as "football season" which should start to get underway at the end of the month. For those that don't know, earning season is a period of about 4 weeks when the majority of the S&P 500 companies report their quarterly earnings. The earning season months are January, April, July, and October. It begins with Alcoa (AA) about 10-12 days into the earnings month. The big earnings push will be the next 14 days. I'm anticipating that the earnings will meet the estimates (in most cases), but that the future guidance might be adjusted downward. Alcoa bettered their earnings estimate and actually increased their guidance for the next quarter. The stock was up in after hours trading when the report came out. This will usually mean that Alcoa will gap up at the open. I'll be interested to see how it trades after the gap up (if it does end up gapping up). If it sells off and closes lower than the opening price, it will mean that AA is likely to continue to trend lower. If it can close higher (with higher than normal volume), it might be able to break above its 50 day MA. The rally has continued in the market over the last few day, but the volume has been lower each day...despite the higher highs. This is usually a very bearish sign and it backs up my belief that this is still just a rally within the downtrend. I am becoming more confident again that the next move down is coming soon. You are starting to see more and more people coming out with bullish outlooks. This is important. It is hard for the market to move down when everyone thinks it is going down...just like it is hard for the market to go up when everyone thinks it is going up. This recent change in sentiment could help set up the next move down. Is the next move down guaranteed? No....but it is probable until proven otherwise. We are at 1078 on the S&P 500 which is very near the .564 retracement of the last move down. This is a bit above the 1071 area I mentioned last week, but it is still within the retracement "zone". If the market can get above its 50 day MA and the "buy" volume starts to increase above the average amount, I might back off of my huge downward move expectation. The 1131 area is where I would begin to turn bullish. If we get above that level, I will be pushing call option trades. I mentioned last week that a continued rally was expected after the July 7th move. We have seen that. I also said that the smarter trade would be to wait for that rally and set up your put option trades for the next big move down. We are very near the area where we expect the next move down. We are also getting near the end of the time estimation for the correction. I said last week that I expected it to be about 3 to 7 days. The 7th day will be around Thursday. Intel reports tomorrow after the close, while JPM, C, and BAC report on Thursday and Friday. The market reaction to those reports will tell us more than Alcoa. You don't need to take a chance in the market over the next few days until you get some sort of confirmation. If the market drops back below 1040, start aggressively buying puts again. If it moves above 1100, you might take some chances on a few call options. There are a few stocks in great reward to risk positions. If you haven't yet entered a put option trade on AXP, look into it. It is very near a key resistance level around $43.25. You could buy a put option here and put a stop above that high. If you don't yet know how to place stops, just sell the option for a small loss if the stock trades above that high. If that resistance holds, the downside target would be at least $37 which would give you a fantastic reward for the relatively small risk. You could even wait for it to get back below its 10 day MA if you wanted some confirmation....but that would change the reward to risk potential of the trade. The GLD still looks very good for a put option trade as gold continues its recent drop in value. This also has a very nice reward to risk...if you use the December 2009 high as your stop loss point.

SUCCESS STORY

Hi Jerry; Over the last few weeks Its been very busy. Watching the markets, preparing to help move my son to California, and wanting to spend some time with my wife. Around the 15th of June I started to move into my positions. Puts on SPY, NSC, APA, RST. Also TZA, an inverse 3X bear ETF. We left for California on the 25th, driving two vehicles. I didn't have an air card for my laptop and I couldn't monitor the markets as closely as I'd like so around the 1st I called my friend Howard M. and had him sell everything. After the dust settled there was about 18000.00 in profits. I would have liked to have stayed in longer but I knew with my situation this was the right move. This is the largest no. of contracts I've owned since we finished class, but it was only 8% of my trading acc., money management,.

This past weekend, my wife and I, drove to Savannah Ga. We had a 7th floor room, in the Marriott, balcony, room service, tha works. On Sat. I took her shopping.My wife knows this is not the first time I've made good profits trading options, but lately shes been calling me " her options sugar daddy". I kinda like it. Thanks for all your help and dedication to the students.

Fred B.

SUCCESS STORY

I entered trades on 6/22/2010-- APA 95PUT @ $5.10 and SPY 112PUT @ $4.23. Profit target was hit on APA on 6/29 and sold @ $12.00. I also sold SPY last Fri 7/2 at the lows of the day @ $10.60. Thats over 100% profit on each position in a week to ten days!! I was pleased. My loosing trades are still slightly outnumbering my winning trades, but by using the money management Jerry teaches in class, my overall profit for the year is still positive. Thanks Jerry!!!

Howard M.

WHAT THE #@%& WAS THAT?

This is what we all felt like today as we watched the S&P 500 go above 1140 and keep going...and going...and going. I was waiting for the late session sell off, but with about 30 minutes left I began to stop myself out. The squeeze was on. The volume was about the same as yesterday so I'm assuming that most of the trading was short covering. Since we closed well above 1040, I expect that the market will chop around a bit over the next few days. Upon closer inspection of the SPX chart pattern, I don't believe that the correction will be as long or as high as the May-June correction. Those with August options should breathe a sigh of relief...although you probably should have already stopped yourself out of the position. I expect the correction to last for about 3 to 7 days and I am targeting the 1071 area (50% retracement). If we sell off a bit tomorrow, it is likely the "B" wave. That would mean that there should be one more move up ("C" wave). If we continue to rally up tomorrow, it would mean that the "A" wave isn't yet complete. Once the market drops back below 1040 (I prefer a close below 1040), you can enter back into your put positions...but use September or October options. I think that trying call option trades on the rally might be a bit risky since I don't expect another move like we had today. You could wait for the "B" wave down and try to trade the "C" wave back up. If you don't know what that means, you shouldn't attempt to trade it. If you want to be aggressive, look to re-enter put positions after the "C" wave is complete. If you use September or October options, you can be a bit early on the entry. I'm in a neutral position right now. I don't want to enter new put option trades yet, but I also don't think the market is starting a new uptrend. I won't start to turn bullish unless the S&P 500 gets above the June 21st high (about 1131). If the market rally ends near 1071 (50% retracement), the next move down could possibly bring the S&P 500 down to around 875. I still can't wrap my head around that possibility, so I'll just keep the 950 to 960 target for now. The rally today shouldn't have been too surprising. We had moved down for about 10 days in a row and there were a lot of people turning pretty bearish (me included). The market will often shift when too many people get too far to one side. With most people bearish in the short term, any rally could squeeze them out of their positions...and that is what happened. I was looking for some sort of capitulation to the downside before I expected a rally to take place. Apparently there were many others looking for the same thing. This rally served as a reminder of the importance of a trade plan. You need to always plan for the possibility of a move against you. Once I realized that the break above 1040 was going to hold, I immediately executed my plan to take some losses and to close out the profitable bearish positions.

Gold will probably rally back up a bit and test that December 2009 high. Those looking for a second chance on the GLD put trade will likely get that chance. If it happens to rally above 120, wait until it closes back below it before entering into any new put option trades. I'll be out of town from tomorrow afternoon to Friday afternoon so there won't be a blog posting tomorrow night. I'll be at Fish Lake, Utah for a very short fishing trip with my sons (I wanted it to be longer, but there is just too much going on). The scary thing is that I will be out of phone and internet range for about 24 hours. Thank goodness for hedging strategies.

IS THE RALLY ALREADY OVER?

Although the market finished in positive territory for the first time in about 10 days, the price action for the day was very bearish. The market gave back nearly all of its gains from earlier in the session. I will continue to watch the 1040 level in the S&P 500. If we close above that level, it might mean that the market could stage another correction similar to the one from May to June. The key is the closing price. The S&P 500 was above that 1040 level during the session today (1042 to be exact), but it ended up closing at 1028. There still isn't any strong buying on any of the rallies. This means that we are still expecting the S&P 500 to drop and we will keep the 950-960 area as a target. I'm waiting for some sort of capitulation to the downside before I will start to take any significant profits. The VIX has continued to drop which signals that the market is becoming a bit less fearful. However, the price action today would indicate that the fear might be about to re-enter the market. The VIX gapped down, but managed to close higher than where it opened for the day. That is a bullish candlestick formation which could mean that the VIX is getting ready to rise. The Asian markets are trading down at the time of this posting. Gold continues its drop with the GLD down 1.67% today. I'm going to look at the $114 area as an initial target. I think that ultimately it will drop down to $102, but that is only if the top has already formed. A move below $114 would indicate that it has a high probability of getting to $102. It would also likely drop to $102 very quickly if that $114 support level is broken.

TUESDAY MORNING UPDATE

With the futures up nearly 1% before the market opens, it looks likely that we will rally up a bit this morning. We talked late last week of a short term rally. The market is due for a rally. It has been down for 10 days in a row. The rally should only be a short term rally. Watch the previous support areas as targets for the rally. I'm watching the 1040 area on the S&P 500. This has been such a key level over the last few months. I don't expect the market to rally back above this level. If it does, then you might want to close out your put option trades and take your profits until it can get back below the 1040 level. Gold looks weak this morning and should start to roll over and go down. If the GLD gets back above $120, you would probably want to stop yourself out and wait for it to get back below that level. Everything still looks great if you are bearish like me. If you have July options, you need to make sure you set up a plan to exit those trades. Any rally could affect the profitability of those options. As long as we don't move above 1040 on the S&P 500, it should be a great day to enter into new put option positions. Many stocks look to be in the "C" wave of a shorter term bearish ABC pattern. With the volatility dropping today, you could get into some nice put option positions at a pretty good price. If you can, try to wait until the end of the day to make sure we haven't moved above that key resistance level (1040).

SHORT TERM RALLY?

The price action turned a bit bullish in the short term as the market rebounded off of its lows today. It managed to close the day very near the opening price. Had it closed above the opening price, I might have been a bit more bullish (in the short term). The market has already priced in a bad jobs report tomorrow. If the report is better than expected, it could trigger a nice short term rally (one or two days...if that). The rally off the lows today was probably due to a lot of short covering. This is a process where short sellers will buy back the stock to close out their bearish positions. With the market down for 11 days straight, it's normal for the traders to start taking some profits off the table...especially ahead of a long weekend. This could possibly continue into tomorrow. It is almost impossible to know how the market will trade tomorrow. I can see evidence for both a rally or a possible decline. The price action today would indicate a possible short term rally, but we are headed into a three day weekend. Traders might want to get out of their positions going into the long weekend...especially with all the bad news coming out lately. The rest of the world will be trading on Monday and this might make some traders nervous. Although I'm basically clueless about tomorrow's outlook, I'm very confident about my intermediate outlook...and possibly longer term outlook. The market is headed lower. If we do get a rally tomorrow, make sure you use it to get into your put option trades. In this environment, you can almost pick any stock you want and make money on a put option. I've shared the bearish patterns I've liked on AXP and AMZN. SPY, DIA, and QQQQ are also still great (and easy) trades. I think you can still make money getting in right here, but a rally tomorrow would probably create a better entry. I few weeks ago I talked about gold getting near a top. We might have received confirmation today. Gold sold off on very high volume. Most of the major gold indexes and ETF's broke below their 50 day MA. The danger is that the trends are still considered up. With the high volume today, I think that aggressive traders can assume that the trend reversal has started. If this is the top on the GLD, my downside target is the $102 area. The reward to risk is great right here if you want to take a chance. You could place a stop above the 12/03/09 high. One disclaimer for those that are new...I've been known to be a bit early on some of my calls. I'm usually right, but sometimes I'm a bit early. The cautious traders can wait for a bit more confirmation. An ideal entry for me would be a failed rally tomorrow up to the $119 area on the GLD. With a stop above the December 2009 high, the reward to risk would be fantastic. If I'm right on this call on the GLD, you guys will owe me a new Mercedes...an E350 Cabriolet please, or a CL600 Coupe (there is only a difference of $100,000 between the two). I want to get you guys making so much money that a comment like that could actually be serious...rather than a joke. I'll just retire from trading and live on the gifts you send my way. Have a great 4th of July weekend and be safe out there.

SUCCESS STORY

Hey Jerry,

I happily sold some Jul109 puts on the SPY yesterday afternoon for 6.36, which I purchased about a month ago for 2.55!!! AMAZING...

Congratulations on completing your endurance relay a few weeks ago! Looking forward to the Elliot Wave course in August. Thanks again for everything!

Take Care,

Matt

SUCCESS STORY

Jerry,

I had some put options on RIMM, before earning an sold them for 100% profit. Also had four different July put options on the SPY sold them Tue. for profits from 30% to 100%.

Thanks

Mark W.