EXPECT A VOLATILE WEEK

This should be a very volatile week. The U.S. elections are this Tuesday and Fed chairman Ben Bernanke will outline his QE2 plan on Wednesday. Since the market has already priced in the expected news from both events, it would take an unexpected bullish surprise to rally the market further. Having said that, I'm not ready to bet against the market until I see the breakdown confirmation...the stuff I've been talking about for the last two months. I still expect the market to have at least one more push higher. It could happen as soon as tomorrow.

STAY AWAY FROM "RARE EARTH" STOCKS

Talk about a gamble instead of a trade...read this article before getting sucked into this "bubble". I recommend staying away from any of these stocks. I think buying or shorting is too risky.

http://seekingalpha.com/article/231266-rare-element-resources-potential-short-opportunity

WE'VE SEEN THIS BEFORE

This is the fourth time in the last month that the market has started the day way down...only to have the buyers come back in at the end of the day. The last three times the market rallied to a new high over the next few days. I expect it to happen again. I think the S&P 500 will probably make one more push to around 1200. The Dow was down around 140 points before it rallied back up to close down 43 points. That is a 100 point rally at the end of the day. The elections are coming up next Tuesday. I anticipate that the market will sell off after the elections. It could happen sooner, but I don't think it will happen this week. The commodity stocks were very weak today...probably because of the dollar rally. The commodity stocks have led this rally over the last two months. They could possibly be leading the way down as well. We'll see. I do expect them to continue to drop over the next few days. It looks like it is going into wave C of an ABC pattern. I think silver should drop to around $22. You can trade it using the SLV. Be prepared to jump in if we get confirmation for a sell off in the next few days (probably next week). The selling could be big if panic starts to set in. If inflation keeps showing up in the economy, the Fed won't be able to use much quantitative easing. This will burst the current QE bubble in the market and things could get ugly. The Fed will speak next Wednesday...a day after the elections. Next week could be a very very volatile week. Don't forget the three days over the last two weeks where the VIX closed up at the same time that the market closed up. There is some fear creeping into this market. What will be the trigger for the avalanche? Here is an interesting read: http://www.marketwatch.com/story/story/print?guid=624C2022-E08E-11DF-B7D4-002128049AD6

EXHAUSTION GAP?

Today's price action looked very much like an exhaustion gap. The market gapped up at the open, ran up, then pulled back at the end of the day. For the third time in two weeks, the VIX moved up on an up day in the market. This time it not only moved up, but it closed at its high for the day...even though the Dow closed up over 30 points. I don't currently expect a major drop until possibly after the elections next week, but that might be a reason why it occurs sooner...because everyone is expecting it after the elections. I still like last week's bearish picks on SNDK and TIE. They are still in good entry positions. Some other bearish stocks include AXP and GMCR. AMZN could be getting close to a 30 point correction. It is one of many stocks that are getting extremely overbought. It would need some confirmation, but it is one to watch if the market starts to sell off.

SUCCESS STORY

Hi Jerry,

This is Davida.

I heard some negative news reported on GameStop (GME) on October 12th.

I immediately went to QCharts and thanks to your classes spotted what appeared to be a picture perfect bearish ABC pattern.

I bought put contracts and in less than a week I exited half of the position with a 47% gain! I held onto the rest of my contracts

for a few more days and when the chart turned against me I sold the rest for a 32% gain.

Just like you always tell us Jerry... we have the power to take the system you teach us and practice it and make it our own... what

a great feeling... thank you!

Davida M./Reseda, CA

SUCCESS STORY

When I signed up for the options training course I thought it was a lot of money but with the guarantee that was offered that if I didn't make enough to pay for my course over a period of time meeting the criteria set by the company I could get my money back I decided to go for it. This is something I have always been interested in, option trading. Jerry did a fantastic job teaching our class over the next several weeks. I learned a lot and applied what I learned and started trading soon after the course was finished. In about one month I made enough to pay for my course and then some. This was my first objective. Jerry has an excellent updated blog and gives on going support answering questions via email promptly even after you have finished the course. I feel I now have the necessary skills to become a successful option trader.

Tony S.

Idaho Falls, Idaho

DOLLAR SHOWS STRENGTH

The dollar had a strong rally today as China announced some tightening measures for their economy. As predicted, the commodity stocks sold off in a big way. Gold, silver, and oil all closed below their 10 day MA's for the first time in a couple of months. AAPL and IBM both rallied after gapping down, but they failed to overcome the drop. The S&P 500 was well below its 10 day MA before rallying up off the lows going into the close. This late session rally created more uncertainty. The dollar clearly moved above its 10 day MA, but the late day rally in the market shows that the buyers are still there....buying every pull back. If the market can continue the selling tomorrow, the correction will likely be underway. If the buyers step in and the market rallies back up above its 10 day MA, you might expect the S&P 500 to move up to the 1200 area. If the market trades up tomorrow, look at buying calls on GS. I told you about this ascending triangle pattern last night. It was above the resistance of the triangle for most of the day, but it did close back below the $157 resistance. If it can close above $157 in the next day or so, you could see a run up to the $175 area. CRUS still looks like a great put option trade. It came close to closing below $16 which was the key confirmation level I mentioned last night. Keep watching the dollar. Most of the 98% that are bearish on the dollar have come out and dismissed today's rally. If the dollar can move higher again tomorrow, you could start to see some panic as these traders start to lighten up on their positions. This could lead to a massive rally in the dollar if everyone tries to head for the exit at the same time. I will be watching the dollar closely tonight. GILD could be another possible bullish trade if the market rallies higher tomorrow.

UPDATE

Gold has wiped out 8 day's worth of gains in less than an hour. Can you say crowded trade? Keep an eye on the dollar.

UPDATE

So far this morning the market is looking at AAPL and IBM as buying opportunities. If that continues, this will be a short term pull back...unless the dollar holds on to this strength. See if the dollar can close above its 10 day MA.

I'LL REPEAT...IT'S ALL ABOUT THE DOLLAR

I've been flooded with emails, after the market closed, asking what I thought about AAPL and IBM. Everyone is wondering if this will trigger a big sell off. My answer is that it might...but it all depends on the dollar. If the after hours results of AAPL and IBM hold up in the morning, these stocks should gap down pretty big. They should then cause many other stocks...particularly tech stocks...to gap down as well. I still think that any further selling will be determined by how the dollar trades. Otherwise, I think that the sell off will again be viewed as a buying opportunity...and I might finally treat it as a buying opportunity. You can follow the dollar using the UUP. You would like to see a close above the 10 day MA. At the time of this posting, the dollar index is trading right at its 10 day MA. It could possibly move above it tomorrow. They key area to watch for on AAPL is $294. If the stock trades below that price, it will likely be in for a bigger correction...possibly to around $250. If it can stay above that price, the buyers might be able to come back in and push it back up to a new high. Watch the financials. If JPM, BAC, and WFC can move above Friday's high in the next day or two, I might believe that they could rally higher (I have to respect the high buying volume today). If they trade tomorrow below today's opening price, they will likely drop further. If AMZN trades below $157, you could look to buy some puts. If it holds above $157 and starts to move back up, you could look at some calls for a short term pop. If you can, try to look at how these stocks are trading during the last hour of the market tomorrow. One other thing to note....for the second time in a week, the VIX and the market both closed higher for the day. Remember, there is usually an inverse relationship with the VIX and the market. When it starts to trade in the same direction, you need to pay attention. It seems that the professionals are starting to take on some insurance for their bullish positions. They don't start doing this unless they are worried that there could be a bigger than normal pull back. I don't detect any panic yet, but we will see how the market trades the AAPL and IBM earnings tomorrow. CRUS could be tied into the AAPL trade. If CRUS looks like it will close below $16, look to buy puts on it. It could end up moving below $13. VMW also looks like it could move much lower...possibly to around $66. AKAM looks like it could move a bit lower...although you would want a stop above the 50 day MA. NFLX looks like it could move lower and test its 50 day MA (around $142). GMCR has rallied back up a bit over the last few days. This one looks like it is getting ready for another move down. This could be one of those "second chance" trades if you missed the first one. You could use a close below its 10 day MA as confirmation. GS reports earnings tomorrow. It is currently in a classic ascending triangle pattern. If it breaks above the $157 resistance, this stock could move up to around $175 within the next few months. With many on Wall Street feeling that this stock might disappoint, we can almost guarantee that it will move higher on its report. This has been the trend so far this earnings season. The stocks that have been doubted going into their earnings (GOOG for example) have done very well, while the stocks that have expected to impress (AAPL, IBM, INTC, etc) have not done well. This could be another example of market manipulation during earnings season. We might do well to trade against the so called "experts" this earnings season.

IT'S ALL ABOUT THE DOLLAR

The market will not drop until the dollar starts to rise. As long as the dollar keeps dropping, commodities and the equity markets will continue to rise. How close are we to a dollar rally? If you ask the masses on Wall Street, they will say "Not any time soon". However...if you look at the sentiment indicators, it could be any day. The investment advisers that are bullish on the dollar stands at only 3%. That's 97% that are bearish. The Investors Intelligence survey has never seen a reading below 3%. On the other hand there are 97% bulls on the Euro, 98% bulls in gold, 97% bulls in silver, and 98% bulls in Treasuries. Approximately 93% of stocks are above their 50 day MA. The equity market readings this week are 47.2% bulls and 24.7% bears (I apologize for the error I made in my classes today...I think I said there were 98% bulls in the equity markets as well. Can you blame me?....there are a lot of 98% in those other surveys). This means that we could still get a bit more of a move upward. The markets are extremely overbought and any rally in the dollar would definitely spark a sell off. You can follow the movement of the dollar by looking at the UUP. The dollar also looks to be in the "C" wave of a bullish ABC pattern....much like the market looks to be in the "C" wave of a bearish ABC pattern. The financials are very weak right now with the foreclosure news. I currently have Bear Put Spreads on JPM, WFC, and AXP. I am also very bearish on the "for profit" educational stocks. I have a Bear Put Spread on APOL. I think INTC will continue to head lower in the near term. GOOG will have a big gap up tomorrow at the open following their good earnings report. If they sell off like INTC did back in July following their blowout earnings report, look for a potential put option play. You would want to see it sell off right after it gaps up. You would also want to see very high volume. I'll try to make an intraday comment on the blog if I see a high probability trade. There is an old Wall Street phrase that says "Don't fight the Fed". I've done a bit too much of that over the last few weeks. Lighten up on the trades (bullish or bearish) and use spreads if you've had Course 2.

STILL FLAT

The market finished flat after moving down almost 100 points at the open. The buyers are coming in on every sell off. That is bullish. However, the buying does seem to die off when the market gets back to even. There are a few bullish trades that I can recommend. I've been bearish on AMZN...but with today's move back above its 10 day MA, it looks like it could move up to at least $161. KR could make a larger move up, but the shorter term target is around $22.60. I like the bearish pick on the Virtual Investing Club website for NSC. A lot will depend on how CSX trades tomorrow following a decent earnings report. If NSC stays below $61.50, it could end up moving down as far as $50. A shorter term target would be about $57 to $58. I also like SLG as a bearish pick. This is a counter trend trade, but I like the reward to risk. You would want to stop out if the stock moves above $68. The downside potential is around $50...ultimately. The nearer term targets would be around $64 and $56.

INTERESTING ARTICLE

http://www.cnbc.com/id/39621721

MELT UP?

We are still waiting for that big down day on higher than normal volume. Until that happens, the market could continue to "melt up". We are seeing signs of a top, but these tops can sometimes take a while to complete. The VIX made a big drop down on a flat day in the market. Normally that would be considered bullish...but with the market already overbought, it could be considered another sign of a top. I just read an article talking about the short interest declining during the month of September. This is a sign that the short sellers (bearish traders) are getting beat up and that they are abandoning their short positions. This sounds bullish, but it is also a sign of being near a top. Normally I would be screaming to buy puts at this time...but with the Fed doing everything possible to prop up the market, it is unknown how long we can continue to "melt up". Many of you have been sitting on the sidelines waiting to get back in. Your patience will likely soon pay off if the markets start to move down. At the time of this posting the Nikkei (Japan) is down 2% and the S&P futures are down 8 points. This doesn't always mean the U.S. market will drop tomorrow, but it could make things interesting. Alcoa (AA) gapped up and sold off today, but the volume just wasn't there. The volume was light almost everywhere. This could be due to the Columbus Day holiday...although I didn't get a holiday. We'll see if things pick up tomorrow. The market might be waiting on INTC earnings after the bell tomorrow. Not so much the current numbers, but the outlook for next quarter. The forward guidance will be key on a lot of stocks.

ALCOA

Alcoa kicked off earnings season with mixed results. The stock traded up in after hours, but not by much. Watch to see how it trades tomorrow. It should gap up at the open. See if it starts to sell off. If it gaps up and sells off on higher than normal volume, look to buy puts at the close and set the stop above the intra day high. More employment news comes out tomorrow and the forecast is that it doesn't look great. The news itself won't matter that much to us. We want to see how the market reacts to the news. My guess is that it should sell off on the news since the market is so overbought. However, the Shanghai (China) index is currently up over 3.5% at the time of this blog posting which could have an affect on how the U.S. markets trade tomorrow. Remember, it is difficult to pick the exact top of any market. We just know that we are near a top. Just look at how fast gold, silver, and oil sold off today.

STILL WAITING...

Not much changed today...except for weakness in the technology sector. The markets remain extremely overbought. Alcoa earnings come out after the bell tomorrow and all eyes are on Friday morning's employment report. AKAM made a decent move down today. Another bearish stock I like is CRUS. BA has a sideways range that is similar to what IBM was in before it broke out. You could buy your put and place a stop above $70 or $71. Downside target would be the support around $60. If you are in any commodity trades (Gold, Silver, Oil, etc.) make sure you are taking profits and lightening up on the positions. These commodities have moved almost straight up over the last few days. They are extremely overbought. When the begin to pull back, they could fall almost as fast as they went up.

ONE FINAL PUSH?

As you can tell from last night's posting, today's move was somewhat expected as a possibility. I didn't like the weak close of the markets yesterday as we barely closed below the 10 day MA. It does, however, look like we are in the final stages of the rally...although there could be some follow through to the upside for a couple more days. The initial bearish signal that I would look for is a gap up in the morning which is followed by heavy selling. This scenario would most likely set the top. I don't really know how or when the selling will start, I just know that it is likely to happen soon. Almost everything is going up right now in the market...stocks, gold, oil, bonds, etc. Everyone is bullish on these trades. Meanwhile, the dollar is plummeting and almost everyone thinks it is going lower. As all this is going on, there are major divergences forming on the charts. Just look at a MACD on the SPY...or just about any stock that has gone parabolic over the last few weeks. Not to mention the heavy selling being done right now from insiders in these major corporations...the corporations that everyone is saying to buy. There seems to be mini flash crashes happening almost every day....or every week. These conditions are perfect for a market crash. This coming from someone who has seen a few of them in his day. I don't know what will trigger it or exactly when it will happen...or even if it will happen for that matter. All I know is that the conditions seem to be lining up. NFLX looked very weak to day. If AKAM breaks support at $46.75, it could go much lower. If GMCR can rally up for another day or two, it might give you a second chance for a put option trade. INTC looks like a good put option trade. COST is extremely, extremely overbought. It could be a good put option candidate. SLB looks bearish if it can close below its 10 day MA. If I were to take any chance from the bullish side, it would probably be in commodities like gold (GLD) or oil (XLE)...but even these stocks are extremely overbought. My recommendation is to either sit on the sidelines a bit longer, or start buying very small put option positions on some of these stocks...or on the markets (DIA, SPY, or QQQQ). Don't gamble here. If you don't have enough money to take on some riskier trades, wait until the market turns and the VIX starts to spike up. If the market does end up selling off to 950, there should be plenty of opportunities to make some money along the way....unless there is another flash crash that takes us to 950 in a matter of minutes. We'll see how things go tomorrow.

SUCCESS STORY

Jerry,

I was in AXP, I got in 2.65 and exit at 5.40 for 5 contract. That was a good trade. Thanks. Mehrnaz

SUCCESS STORY

Here is the AXP Success story. I been watching AXP all summer long, and then the recommendation came out to buy puts. I was a little hesitant, because I have been beaten up on puts all September long. I cautiously entered a limit order for the Nov 43 puts at $2.50. It did not get filled, and I forgot about it. Later that day I put in an order for Nov. 43 puts…..all the while still forgetting I had a pending order for 42 puts, which must have gotten filled, and I did not realize. (rookie error…I am a new trader) By mistake, I had double the amount of AXP puts that I intended to buy. This turned out to be a profitable error after yesterday’s big move. It actually made up for my draw downs in September.

Paul B.


This is a good example of how one successful trade can help to overcome a few unsuccessful ones. If the market makes the expected move down within the next few weeks, earlier draw downs can be erased very quickly. Although the amount of risk was probably much higher than Paul had planned, he was able to recoup a big chunk of money through just one successful trade. Paul also uses a money management plan so that he doesn't wipe out his account through a small string of unsuccessful trades. This is what allows him to survive until he gets that next big winner. Good job Paul.

SUCCESS STORY

Hey Jerry

Here is my story; I bought 30 SLV Nov calls on 9/28 for 1.08 and sold them today 10/5 for 1.60 This was a 1486.00 profit for 1 week or nearly 50% return Never could have or would have tried this without the classes

Thank a million

Keith H.

SUCCESS STORY

Jerry, It was great to have a little success on the AXP puts given out last week by the Virtual Investing Club website! It had been a rough September. But I did get in on some AXP puts when they were around $42 last week and sold this morning after the last 2 day selloff for a great 100% return. I did not do much but I basically put in $850 and sold them for $1700.

John

CONFIRMATION???

All three major indexes closed below their 10 day moving averages today...barely. Some late buying (some in the last two minutes of the market) made it interesting. I wouldn't say that today's close below the 10 day MA was strong confirmation. If we would have closed at the lows of the day, it would have been much better confirmation. If any of you traded the AXP trade, send me your success story and I will post it. Some other recommended patterns that made big moves down include GMCR, AKAM, and AAPL. If you missed those trades, try puts on NFLX, HPQ, or AMZN. The success of those puts might depend on how we trade tomorrow. The last time the SPY closed below its 10 day MA, the market rallied 200 points the next day. This time we do have all three indexes below the 10 day MA, but it still wouldn't surprise me if we had just one more move up. Tops and bottoms can take time to form, but the market has shown signs that it might want to go down. If that happens tomorrow, we'll be ready.

NO CONFIRMATION YET

Today's price action was very bearish and typical of a topping pattern, but I've been fooled by some of these similar bearish patterns over the last few weeks. Although the markets are extremely overbought, it is hard to tell how long the Fed will (or can) keep things moving upward. I'm waiting for a closing price below the 10 day MA on all three indexes. It also wouldn't hurt to get an S&P move back below 1130. Even if both of those things happen, I will still be suspicious if the selling isn't accompanied by higher than normal volume and a spike in the VIX. This is a dangerous area for new bullish trades and not quite ready for new bearish trades. The only trades I am using right now are vertical call and put spreads (Course 2)...mostly on those overbought stocks I listed in the previous postings. Not a bad time to sit on the sidelines and maybe catch a movie...like maybe Wall Street 2. By the way...I dragged my wife to see that movie and I know she didn't have a clue what was going on. That's okay, I've sat through my share of "chick flicks".