I've received a lot of emails this morning related to the market trading up after such a bearish move last Friday. These post sell off rallies are very normal. Back in 2008 when the market dropped 700 points in one day during the financial collapse, the market rallied about 500 points the next day. We don't get scared by the rally unless it reverses the previous sell off. In other words, as long as the market doesn't rally to a new high within the next day or two, we'll assume that this rally is a set up for another move lower. You have heard me refer a lot to the price action from last April. If you notice the day that the S&P finally closed below its 10 day MA, you will also see that it rallied back up a bit over the next two days. However, that rally failed to push the market higher and the sell off continued. Today's rally should be light in volume and the VIX shouldn't move down very much. For those brave enough, you could use today's rally to buy more puts. For those that want to play it safe, you can buy more puts when/if the market starts to sell off again.
Monday, January 31, 2011
Friday, January 28, 2011
THIS IS IT
The VIX is up almost $4! Market averages are at their lows and about to close below the 10 day MA. Gold and silver are spiking. Unless something dramatic changes in the next 5 minutes then this is it. This is the confirmation for a market sell off. Look at the 50 day MA as an initial target for the S&P 500.
SHORT MARKET, LONG GOLD?
If it looks like the three markets will close below their 10 day MA's, you might want to consider buying puts on the DIA, SPY, and QQQQ and calls on the GLD. With all the unrest out there, we could see a pop in gold. You could also add silver by buying calls on the SLV. I don't see the buyers yet as we go into the last hour of the market. Let's see how this thing closes.
SELLING ACCELERATING TODAY
The market has been open for about 2 hours and so far the story is about the early selling. All three major indexes are below their 10 day MA right now. It is still early in the day, so I'm going to continue to watch going into the close. If we close near these lows, we'll need to flip flop again and buy puts. I would have liked to see more capitulation to the upside before getting a decline in the market, but we might not see it. The Dow hit its 12,000 and the S&P 500 got its 1300. This could be the sell off that I've been looking for. The VIX has spiked up significantly. Watch to see if the buyers come in late...like they've done several times in the past. If they don't, I'll be very confident that the expected decline is underway.
Wednesday, January 26, 2011
BEAR PARTY ON HOLD
Although the Dow hit 12,000 then sold off a bit, it looks like the market might stage one more rally before the Bear party begins. The Dow was mostly flat today, but the other indexes made pretty good moves up. The Russell 2000 (RUT or IWM) was up almost 2%. The Nadaq was up almost 1% and the S&P 500 was up about a half of a percent. The Dow Transportation Average (IYT) was up over 1%. The volume wasn't too bad. This leads me to believe that the market may rally a bit higher over the next few days ...especially with earnings season winding down next week. If we do rally a bit higher, here is a list of great possible bullish trades to take advantage of that move...again, these are bullish trades: WLT, KOL, ANR, MEE, CAM, CCJ, MDR, PH, WFT, XLB, XME, SCCO, GWR and SNDK. A special thanks to www.tradervibes.com for some of those picks. The market is still extremely overbought. If the S&P 500 drops or closes below its 10 day MA, we'll be back to the Bear party.
Gold and Silver Update
This post is from Chaz...a commodities trader that writes a monthly newsletter on the precious metals market. He has given me permission to post it on my blog. As a disclaimer...I (and Option Magic) are not responsible for the content or recommendations in this newsletter. Also...a lot of this information relates to trading the actual commodities. There may be some terms or strategies that you don't recognize. This update is meant to be an information guide for those of you that are trading gold and silver...or just the gold and silver ETF's like the GLD or the SLV. This commentary is opinion and analysis. You must still use good money management and trade management principles. You must also read the charts. No one...I'll repeat...no one knows the exact future of any event on Wall Street. You must still do your due diligence. Thank you Chaz.
Good evening traders. I recently received an inquiry concerning gold and silver stocks. Please pay attention here. The comments I make in this commentary are intended to relate ONLY to COMMODITY FUTURES. Specifically OPTIONS. They are NOT intended to relate to stocks or funds. These comments are NOT predictions. They are the most likely probabilities based on the most recent information available. The bear raid we are watching now will likely end tomorrow. My best guess is that the shorts will keep the gold price around its current range of 1332 and silver around 26.60 to 27.00 . The purpose of this is to insure that the gold 1340 (and higher) and the silver 27.00(and higher) options expire worthless. I noted with interest that the CFTC failed to implement its 60 day notice on position limits today. My guess is JPMorgan is begging for more time to unwind its massive short positions. It looks like they are going to get it. I don't expect much movement Wednesday but Thursday is another matter. There is substantial evidence to indicate that the next rally may be a big one. I think it is very likely we will see silver at 37.50 and gold above 1450. Gold may very well challenge the 1521 barrier. Everyone should still be in possession of all their options. I hope some of you were able to add to your positions at favorable prices. If not, Wednesday will probably be your last chance. When the rally does begin, its a pretty safe bet to expect it to rise rapidly. I will not be surprised if we see a whipsaw movement to the previous contract high. It might be a good idea to take a few positions off the table and ride the rest. Don't forget to roll out to the next month but wait for a little retracement to fatten your pocket. Might be a good idea to roll out by next Wednesday. ....Happy trades everyone....Chaz.....Jan 25,2011...8pm
Good evening traders. I recently received an inquiry concerning gold and silver stocks. Please pay attention here. The comments I make in this commentary are intended to relate ONLY to COMMODITY FUTURES. Specifically OPTIONS. They are NOT intended to relate to stocks or funds. These comments are NOT predictions. They are the most likely probabilities based on the most recent information available. The bear raid we are watching now will likely end tomorrow. My best guess is that the shorts will keep the gold price around its current range of 1332 and silver around 26.60 to 27.00 . The purpose of this is to insure that the gold 1340 (and higher) and the silver 27.00(and higher) options expire worthless. I noted with interest that the CFTC failed to implement its 60 day notice on position limits today. My guess is JPMorgan is begging for more time to unwind its massive short positions. It looks like they are going to get it. I don't expect much movement Wednesday but Thursday is another matter. There is substantial evidence to indicate that the next rally may be a big one. I think it is very likely we will see silver at 37.50 and gold above 1450. Gold may very well challenge the 1521 barrier. Everyone should still be in possession of all their options. I hope some of you were able to add to your positions at favorable prices. If not, Wednesday will probably be your last chance. When the rally does begin, its a pretty safe bet to expect it to rise rapidly. I will not be surprised if we see a whipsaw movement to the previous contract high. It might be a good idea to take a few positions off the table and ride the rest. Don't forget to roll out to the next month but wait for a little retracement to fatten your pocket. Might be a good idea to roll out by next Wednesday. ....Happy trades everyone....Chaz.....Jan 25,2011...8pm
Tuesday, January 25, 2011
DOW WANTS TO GET TO 12000
The late day rally showed how much the traders want the Dow to get to 12000. It wasn't a big surprise. It is only a few points from 12000 (23 at last check). See if it opens higher tomorrow then starts to sell off once 12000 is hit...or sometime soon after. The Fed has a report on interest rates tomorrow and the State of the Union address from the president is tonight. Could be a big day tomorrow (Wednesday).
GOLD AND SILVER
There have been some predictions posted on the blog over the last couple of months related to gold and silver. My recent prediction was that I thought gold would eventually make one more move higher before starting a bigger correction. I said that it could continue to fall in the short term, but that it should eventually make a new high. I still feel like this is possible for gold. Many of the postings on this site are predictions or recommendations. They are not absolutes or guarantees. I've said over and over and over that no one can know the absolute future movement of a stock. This is why it is so critical that you use Money Management and Trade Management. As I've seen from a few recent emails, many are gambling on the stock picks and recommendations. They are betting that a pick will work out. They are not trading the pick, they are gambling on the pick. I hope everyone understands the difference. The bullish recommendations on gold were made when the stock was still above (or very close to) its 50 day MA. The GLD has been below its 50 day MA since January 13th. It has been below its 10 day MA since January 13th. Every trade needs to be managed. You don't have to use a stop on your option trades. If you don't use a stop, you need to realize that you are risking the entire amount of money that you are putting into the trade. If that money disappears, you had better been prepared to accept that risk. Please follow the principles I taught you in the course. They work....and more importantly, they will keep you out of trouble.
Having said all that....gold and silver could bounce soon. They are nearing some support. If you are underwater in your gold or silver trades...and you are nearing the expiration date on your options, you need to look at ANY rally as a way to exit those positions at a smaller loss. If the trades are over a 60% loss, there will not likely be a reasonable probability to breakeven. Knowing that, you should look to sell out if there is any significant rally.
Having said all that....gold and silver could bounce soon. They are nearing some support. If you are underwater in your gold or silver trades...and you are nearing the expiration date on your options, you need to look at ANY rally as a way to exit those positions at a smaller loss. If the trades are over a 60% loss, there will not likely be a reasonable probability to breakeven. Knowing that, you should look to sell out if there is any significant rally.
Monday, January 24, 2011
MARKET RALLY SHOWING WEAKNESS
Last week the S&P 500 dropped below its 10 day MA before closing at it. The Nasdaq has already closed below its 10 day MA. The Russell 2000 is well below its 10 day MA. The Dow is the only index that has seemed to perform well. In other words, there are only a couple of large companies that are making this market look like it is okay and going higher. You can believe it if you want, but I'm suspicious. The volume has been light so far today despite the appearance of a big rally. This could change in the next 2 hours so I'll keep an eye on it. The Dow Transportation Average (IYT) is often a leading indicator of the overall market. It is well below its 10 day MA and has not rallied much today. You have MACD divergence and RSI divergence. Just about every technical thing I look at says the market is rolling over and should start going down soon. I'm still nervous because I know how much the Fed wants this market to go up and I've seen what it can do to "prop" it up, but I also know that they can't keep it up forever. The market might be able to rally a bit more this week as good earnings keep coming out, but "earnings season" will really wind down next week. I don't see anything else out there (news wise) that will keep the market going higher. If you have the guts to do it, you should consider buying puts on SPY, QQQQ, and DIA on today's rally. Not huge positions, but initial positions. That way you could add to them when these indexes close back below their 10 day MA's. If you do take on an initial put option trade, don't add to it if the market keeps inching higher. We don't want to wipe out our accounts if the market does keep going higher. We want to get more aggressive and add to our positions when the market gives us confirmation. Other bearish trading opportunities include (MA) Master Card (if it can get back below its 50 day moving average), XLB, XME, CMG, and SOHU.
Wednesday, January 19, 2011
MARKET NEARING 10 DAY MOVING AVERAGE
I told you before I left on vacation to watch for the S&P 500 to drop below its 10 day moving average. If it closes below this average, it could quickly drop down to its 50 day moving average within a few days...much like it did back in November. There are many divergences showing up in the market...they've been showing up for weeks. The market has continued to move higher despite these warning signs. Today's selling showed that the market might be ready to start that correction. The VIX started to spike up a bit at the end of the day and the S&P 500 had a big move down (1%). Watch to see if the selling continues tomorrow...particularly if the S&P closes below its 10 day MA. If it does, start buying puts. For an easy trade, you can buy puts on the SPY, DIA, or QQQQ. Financials look like they are heading lower. For financials, you can buy puts on GS, MS, JPM, BAC, COF, C, etc. Technology stocks are also looking weak. AAPL should sell off a bit...maybe down to around $325. AMZN could follow. It might be time to take profits on MRVL...by the way, send me success stories if you traded this pick. The dollar is down around a 50% retracement (61.8% on the UUP) of the last move up. It could start to rally within the next week. If it does, you can trade the dollar using the UUP.
BIG MOVE ON NFLX?
It's earnings season and Netflix (NFLX) has been one that many traders have paid attention to over the last year. It has gone through a tremendous growth phase over the last several months. Recently, many institutional investors have begun to wonder if the valuation on Netflix is starting to get too high. There have been a lot of attempts to short the stock with an expectation that it might start to go down. Many of those short sellers have been burned recently as the stock continued to go higher. This week there have been some new developments that might add to the short sellers arsenal. Earlier in the week, Comcast announced that they will buy NBC. Part of Comcast's future strategy is to use their cable network to increase on demand movies and programming. This will compete directly with Netflix. Since Comcast already owns the distribution channels (cable)...or at least a large portion of it, they have the upper hand in this competition. Also, an article came out yesterday that shows that Netflix might be angering a large group of their core subscribers by shutting down the DVD mailing portion of their business. Not immediately, but phasing it out. You can read the article by clicking on this link: http://blog.movies.yahoo.com/blog/432-netflix-is-abandoning-dvds-customers-who-prefer-dvds
This might not add to any future selling of the stock, but it doesn't help. NFLX reports earnings next Wednesday on January 26th. If the short sellers are correct, this stock will likely plunge after their earnings report...maybe sooner if the whole market starts to sell off. If they are wrong and the earnings report is really good, you will see the mother of all short squeezes and this stock could jump up $20 in one day. Since I don't know which way it will go, it sets up nicely for a Straddle or Strangle trade. If you have taken my Advanced Option Strategies Course (Course 2), you should know how to set up that trade. If you haven't taken Course 2, email me and I'll see if I can get you a good deal on it. Remember that you need to set this trade up before it gets too close to the earnings day. You also want to try to set up the trade on an upward move on the stock. This might be hard to do if the market sells off tomorrow, but you should try to follow that step if you can. I really think we are about to see a big move on NFLX...the big question is which direction is it going to go? The Straddle or Strangle trade will allow you to make money if it ends up making a big move up or a big move down.
Tuesday, January 18, 2011
Gold and Silver Update
This post is from Chaz...a commodities trader that writes a monthly newsletter on the precious metals market. He has given me permission to post it on my blog. As a disclaimer...I (and Option Magic) are not responsible for the content or recommendations in this newsletter. Thanks Chaz.
Good evening traders. Sadly, Jim Sinclairs prediction of gold over 1600 by Jan 14, 2011 failed to materialize. While he definatly missed the date, I'm not so sure he missed the month. We shall see over the next few weeks. Last weeks raid was nothing short of amazing. I'm not surprised the raid occurred but I am surprised at some things connected to it. What I found most facinating was that while gold and silver were getting hammered, copper ROSE OVER 300 points and the dollar index was pretty much asleep. I've NEVER seen ANYTHING like this before. I've talked to several other commodity futures traders and brokers and asked if any of them had ever seen a market act like this naturally. They ALL said NO. I do not believe this was a natural market. This screams manipulation. The fact that the dollar index was pretty much dormant tells me that the supposedly mythical "plunge protection team" , whose fingerprints are all over every financial instrument on Wall Street, WASNT involved in this. That leaves the other two primary players. J P Morgan and the Central Banks. Many analysts include JPM in with the central banks but I do not. I think it is important to recognize that the holder of the worlds largest short position in silver is an entity all to itself. This one bank has the power to move the silver market any way it wants without any help from the centrals. By the way, they also have a massive short position in gold too. The next thing that caught my attention was what happened when gold broke below 1369 and silver broke below 28.80. A massive army of buyers stepped in and started buying EVERYTHING being dumped into the market and they literally stopped the shorts in their tracks. The battle raged for several hours and was amazing too watch. Friday was one of the most volitile days of repeatedly constant up and down action I've ever seen. I managed to jump in there and snag two more positions in silver at 28.20 before the market closed at 28.42. I love a happy ending at the close of the day. Anyway, I believe the worst is over. It is certainly possible this correction will continue but I doubt it. The volitility we saw in the last few days tells me that its going to get worse in the next few weeks.I think it is highly likely that gold will be over 1400 and silver over 30 within a few trading days. The shorts got a powerful message delivered to them by the longs on Friday. I think that message was basicly this... "Bring it on. We'll buy EVERYTHING you've got to sell... And we'll take delivery". I was expecting this market to move a little higher before correcting but as I look back on the charts at the evidence available at the time, I think I would still call it exactly as I did. I'm sure that my detractors will delight in telling others how wrong I was and how much smarter they are with their 20/20 hindsight but please try to remember the I make these calls BEFORE they happen. It takes courage to do that. That is a rare commodity in itself these days. I cant help but notice that my detractors are always dead silent about my forcasts until AFTER they have passed. When Im wrong, Im the first to admit it. But Im not wrong very often. My short term calls over the last 3 weeks have been off but not due to technical analysis. This is one of the pitfalls of a manipulated market. However, my long term calls are dead on.... I'm getting a little more organized about this newsletter. It started off as just a few occasional comments about what was going on. That was seven years ago. It just went to a few friends at first. Then it started growing. I'm amazed at how big it is now. Im at a point now where Im going to try to send this out every two weeks. Around the first and the middle of the month. I give this to you freely and ask nothing in return. It is simply my own opinion and my hope that you will prosper from this. If you dont like my opinion , then stop reading mine and write your own commentary and spare me your 20/20 hindsight wisdom. THIS WEEKS CALL... Expect a VERY volitile next few weeks. I suspect some of the swings will be big. We should see gold over 1400 and silver over 30 within days. I will not be surprised to see golds 1444 barrier broken and 1521 challenged by the end of January. If that happens, it is likely silver will hit our target of 37.25 well before the March contract settles in late Febuary. If this happens, take half your positions off the table and wait for the correction to buy back in. Remember to buy options only "at the money". DO NOT TRADE CONTRACTS!!! If you were trading contracts last week , you probably lost your entire position. If you were trading options "at the money" you didnt lose anything. If you only have physical, you didnt lose anything. Thats it. Tomorrow morning promises to be very interesting. And profitable. Happy trades....Chaz
Good evening traders. Sadly, Jim Sinclairs prediction of gold over 1600 by Jan 14, 2011 failed to materialize. While he definatly missed the date, I'm not so sure he missed the month. We shall see over the next few weeks. Last weeks raid was nothing short of amazing. I'm not surprised the raid occurred but I am surprised at some things connected to it. What I found most facinating was that while gold and silver were getting hammered, copper ROSE OVER 300 points and the dollar index was pretty much asleep. I've NEVER seen ANYTHING like this before. I've talked to several other commodity futures traders and brokers and asked if any of them had ever seen a market act like this naturally. They ALL said NO. I do not believe this was a natural market. This screams manipulation. The fact that the dollar index was pretty much dormant tells me that the supposedly mythical "plunge protection team" , whose fingerprints are all over every financial instrument on Wall Street, WASNT involved in this. That leaves the other two primary players. J P Morgan and the Central Banks. Many analysts include JPM in with the central banks but I do not. I think it is important to recognize that the holder of the worlds largest short position in silver is an entity all to itself. This one bank has the power to move the silver market any way it wants without any help from the centrals. By the way, they also have a massive short position in gold too. The next thing that caught my attention was what happened when gold broke below 1369 and silver broke below 28.80. A massive army of buyers stepped in and started buying EVERYTHING being dumped into the market and they literally stopped the shorts in their tracks. The battle raged for several hours and was amazing too watch. Friday was one of the most volitile days of repeatedly constant up and down action I've ever seen. I managed to jump in there and snag two more positions in silver at 28.20 before the market closed at 28.42. I love a happy ending at the close of the day. Anyway, I believe the worst is over. It is certainly possible this correction will continue but I doubt it. The volitility we saw in the last few days tells me that its going to get worse in the next few weeks.I think it is highly likely that gold will be over 1400 and silver over 30 within a few trading days. The shorts got a powerful message delivered to them by the longs on Friday. I think that message was basicly this... "Bring it on. We'll buy EVERYTHING you've got to sell... And we'll take delivery". I was expecting this market to move a little higher before correcting but as I look back on the charts at the evidence available at the time, I think I would still call it exactly as I did. I'm sure that my detractors will delight in telling others how wrong I was and how much smarter they are with their 20/20 hindsight but please try to remember the I make these calls BEFORE they happen. It takes courage to do that. That is a rare commodity in itself these days. I cant help but notice that my detractors are always dead silent about my forcasts until AFTER they have passed. When Im wrong, Im the first to admit it. But Im not wrong very often. My short term calls over the last 3 weeks have been off but not due to technical analysis. This is one of the pitfalls of a manipulated market. However, my long term calls are dead on.... I'm getting a little more organized about this newsletter. It started off as just a few occasional comments about what was going on. That was seven years ago. It just went to a few friends at first. Then it started growing. I'm amazed at how big it is now. Im at a point now where Im going to try to send this out every two weeks. Around the first and the middle of the month. I give this to you freely and ask nothing in return. It is simply my own opinion and my hope that you will prosper from this. If you dont like my opinion , then stop reading mine and write your own commentary and spare me your 20/20 hindsight wisdom. THIS WEEKS CALL... Expect a VERY volitile next few weeks. I suspect some of the swings will be big. We should see gold over 1400 and silver over 30 within days. I will not be surprised to see golds 1444 barrier broken and 1521 challenged by the end of January. If that happens, it is likely silver will hit our target of 37.25 well before the March contract settles in late Febuary. If this happens, take half your positions off the table and wait for the correction to buy back in. Remember to buy options only "at the money". DO NOT TRADE CONTRACTS!!! If you were trading contracts last week , you probably lost your entire position. If you were trading options "at the money" you didnt lose anything. If you only have physical, you didnt lose anything. Thats it. Tomorrow morning promises to be very interesting. And profitable. Happy trades....Chaz
SUCCESS STORY
Hi Jerry,
Happy new year. I have taken advice from you multiple times, but never wrote a success story. I hope to write it now..
I took your course in 2009 and immediately could capitalize the learning to make 16,500$ by the end of the year netting me a ~100% appreciation. However, in early 2010 I disbanded most of your lessons like keeping only 10% of your capital in any option, buying options with only 2 months into expiration, buying around earning etc..All the things you asked me to avoid and I lost 22,000$.. I took a hard look at my portfolio and decided that I lost because I forgot Jerry's lessons. So, in november 2010 I used your simple lessons and thanks to the coaching you provided, I made back 19,000$ in 2 months.
People might ask what did I do well.. I picked some tech stocks who benefit from the shift to cloud computing (F5, APKT) and some stocks around traditional manufacturing (DE) and some good retail stocks (FOSL, IMAX).
But the most important thing was I followed your lessons, I never allocated more than 10% of my capital, bought the options 3-4 months before expiration, not around earnings season etc..
My biggest failure was to buy GOOG and buying a lot expecting it to multiply my fortunes overnight.. That was wrong and I intend to follow your lessons for a safe and exciting investing for life.
Regds
Vinay
I'M BACK!!
I was on a cruise last week which is why there weren't any postings. It was a great trip and it's been an adjustment getting back to the normal grind...and the colder weather! I will have a posting as soon as I can get up to speed on what the market has done since I've been gone.
Friday, January 7, 2011
SILVER AND GOLD UPDATE
This post is from Chaz...a commodities trader that writes a monthly newsletter on the precious metals market. He has given me permission to post it on my blog. As a disclaimer...I (and Option Magic) are not responsible for the content or recommendations in this newsletter. Thanks Chaz.
Good evening traders. This update is intended primarily for the new traders in our group. I've received many questions about what is going on in this market and since I have quite a few new members , I'm going to try to bring you up to speed. So lets get started. There are two primary rules to investing. Rule #1. DO NOT lose principal. Rule #2. Reread rule # 1. Last month I gave you barrier numbers for gold. They are 1278, 1369,1444, 1521, 1600, 1650, 1681, 1764, 1849, 1936, and 2025. Tonight we are going to talk about 1369 and 1444. As I explained before, these barriers act as resistance until they are clearly broken and then act as support. I also said that it usually takes ABOUT 3 assaults on a barrier to break it. When the market is trading in between barriers, ANYTHING GOES. Often , anything and everything can, will, and usually does. So what just happened ? Pull up a current gold chart and lets take a look. A second assault was occurring on the 1444 ( resistance ) area and the short sellers stepped in and sold tons of unbacked paper contracts into the market to try to force the price down, which they did. But look what happened. They were stopped at about the 1369 ( support ) area. When a market makes a move that carries it from one barrier to another, that is A MAJOR WARNING that extreme volatility is very near. I believe we will see swings as high as $100 in gold and possibly as high as $5 in silver very soon. What just occurred was what I refer to as a RAID by the short sellers. This has been going on for years. This is why we DON'T TRADE CONTRACTS. We trade options ONLY. If you were long on a gold contract, you would have just lost a LOT of principal and possibly been forced to liquidate if you didn't have enough capital to maintain your margin. If you were sitting on a gold call option, the value of your option would have dropped but YOU WOULD STILL HAVE YOUR OPTION and you would be in position to ride the next wave up. This next wave will likely break the 1444 area and quickly run up to the 1521 area and possibly BLOW THROUGH it on to the 1600 area. Remember, barriers are not exact numbers, they are approximate numbers. Also remember that every time we get near a barrier that it is highly probable that a correction is about to occur. Such as we just witnessed. If you do not trade contracts or options and hold physical metals only, then you don't even need to concern yourself with what this market is doing unless you buy and sell daily as I do. I was asked if I was worried about this move. No, I am not. I did lose potential profits to the tune of tens of thousands of dollars but I still have ALL of my position and am certain that I will profit very well as this market resumes upward in the next few days. To an experienced trader, a correction like this is a GIFT. It is an open invitation to increase your position to make even larger profits. Now, on to silver. Last month, I said that it was almost impossible to give you barriers on silver. Last week I had a conversation with my good friend J.B. Slear at Fort Wealth Trading and we were discussing silver barriers. If you recall, I said $35 was very likely but that I felt like $40 was a little too optimistic. Guess what? We identified two barriers in that range. The first is at $37.25 and the second is at $39.70. There are never any guaranties but I am very comfortable that we will see $37.50 soon. We may even go to $39.70 but I think it is highly likely that a violent correction will occur once we top out. The higher these markets go, the more volatile they are going to be. Within another year or two, you will probably see swings that will put some contract traders into cardiac arrest. Try not to be one of them. Happy trades....Chaz
Good evening traders. This update is intended primarily for the new traders in our group. I've received many questions about what is going on in this market and since I have quite a few new members , I'm going to try to bring you up to speed. So lets get started. There are two primary rules to investing. Rule #1. DO NOT lose principal. Rule #2. Reread rule # 1. Last month I gave you barrier numbers for gold. They are 1278, 1369,1444, 1521, 1600, 1650, 1681, 1764, 1849, 1936, and 2025. Tonight we are going to talk about 1369 and 1444. As I explained before, these barriers act as resistance until they are clearly broken and then act as support. I also said that it usually takes ABOUT 3 assaults on a barrier to break it. When the market is trading in between barriers, ANYTHING GOES. Often , anything and everything can, will, and usually does. So what just happened ? Pull up a current gold chart and lets take a look. A second assault was occurring on the 1444 ( resistance ) area and the short sellers stepped in and sold tons of unbacked paper contracts into the market to try to force the price down, which they did. But look what happened. They were stopped at about the 1369 ( support ) area. When a market makes a move that carries it from one barrier to another, that is A MAJOR WARNING that extreme volatility is very near. I believe we will see swings as high as $100 in gold and possibly as high as $5 in silver very soon. What just occurred was what I refer to as a RAID by the short sellers. This has been going on for years. This is why we DON'T TRADE CONTRACTS. We trade options ONLY. If you were long on a gold contract, you would have just lost a LOT of principal and possibly been forced to liquidate if you didn't have enough capital to maintain your margin. If you were sitting on a gold call option, the value of your option would have dropped but YOU WOULD STILL HAVE YOUR OPTION and you would be in position to ride the next wave up. This next wave will likely break the 1444 area and quickly run up to the 1521 area and possibly BLOW THROUGH it on to the 1600 area. Remember, barriers are not exact numbers, they are approximate numbers. Also remember that every time we get near a barrier that it is highly probable that a correction is about to occur. Such as we just witnessed. If you do not trade contracts or options and hold physical metals only, then you don't even need to concern yourself with what this market is doing unless you buy and sell daily as I do. I was asked if I was worried about this move. No, I am not. I did lose potential profits to the tune of tens of thousands of dollars but I still have ALL of my position and am certain that I will profit very well as this market resumes upward in the next few days. To an experienced trader, a correction like this is a GIFT. It is an open invitation to increase your position to make even larger profits. Now, on to silver. Last month, I said that it was almost impossible to give you barriers on silver. Last week I had a conversation with my good friend J.B. Slear at Fort Wealth Trading and we were discussing silver barriers. If you recall, I said $35 was very likely but that I felt like $40 was a little too optimistic. Guess what? We identified two barriers in that range. The first is at $37.25 and the second is at $39.70. There are never any guaranties but I am very comfortable that we will see $37.50 soon. We may even go to $39.70 but I think it is highly likely that a violent correction will occur once we top out. The higher these markets go, the more volatile they are going to be. Within another year or two, you will probably see swings that will put some contract traders into cardiac arrest. Try not to be one of them. Happy trades....Chaz
Thursday, January 6, 2011
MELT UP CONTINUES
Many of the picks I made on Tuesday (actually late Monday night) are making decent moves. Most of the other ones are flat. This is a critical area in the market right here. There are a lot of signals that a correction is imminent...but the market has ignored some of these signals in the late year/new year melt up. I still like a lot of those bullish patterns that I listed a couple of days ago. I could see the market making one last push though the end of the month as earnings season kicks off this Monday, but I could also see it selling off through this period. As a hedge on your bullish (call option) positions, consider buying some calls on the VIX (or VXX) as a hedge on these positions. I don't see much downside potential on the VIX over the next few weeks, but I do see potential for a spike up in the VIX during this period. This is starting to feel a lot like April of 2010. If the S&P 500 closes below its 10 day MA, I think that a larger correction could be underway. I don't normally use trailing stops on my option trades...but if your bullish trades have already made a decent move up, consider moving your stop up to your entry price (breakeven). This way, if the market suddenly reverses, you will get out near breakeven. Meanwhile, your VIX trade could then possibly make you a nice profit. If the market continues higher over the next few days, the bullish trades should continue to move higher. The VIX trade would probably lose some money initially, but it could end up breaking even or making money later on in the month if a bigger correction comes after earnings season. The pattern on the dollar index looks very bullish. You can trade the dollar using UUP. The dollar often (not always) trades inversely to the market. If the dollar goes up, it often means the market will go down. This relationship isn't always exact...at least not on a day to day comparison. Today the market was up and the dollar was up. I think that buying calls on the UUP could also be a good hedge against a market sell off. MU looks like it is bumping into some resistance around $8.78. It could pull back to around $8 before busting through that resistance. If you are in that trade, you might want to consider taking some profits or tightening up a stop (if you are using a trailing stop). SLW had some fairly bullish price action today. If it can get above its 10 day MA, it might be a good bullish trade. This is a critical area for gold and silver. They looked like they could be starting a larger correction, but buyers came in at the end of the day. This could lead to one more possible move higher. If that happens, it could be sudden and spectacular. Many commodity traders predict possible $80 to $100 dollar swings in gold within the next few weeks. If the GLD can build on today's late session buying, I could easily see the bullish crowd coming back for one last rally. I will be out of town next week, so this might be my last posting until Monday the 17th. Keep an eye on the earnings. Alcoa (AA) kicks off earnings season on Monday the 10th. I've already told you of a possible bearish trade on that stock going into earnings. Have a great week.
Tuesday, January 4, 2011
UPDATE
I like put options on AA if you can get in before the close. The stock is over extended to the upside and the price action over the last 2 days has been very bearish. Bearish in that it looks like an exhaustion gap. Earnings are next Monday (January 10th) and I think it will sell off when the numbers come out. Place a stop a bit above today's high. If I'm right, we shouldn't go above that high.
UPDATE
News just came out on ATHR that QCOM is going to acquire it for around $45 per share. This would be a great candidate for an Iron Condor trade if it is set up within the next few days. This stock should stay right around $45 until the acquisition is complete. You can profit from the price not moving for the next few weeks. If you don't know how to do this trade, contact me about taking the Advanced Option Strategies course (Course 2). You can reach me at jerry@myoptionmagic.com. Unless the agreement falls through, this trade should be easy money. I'm looking at the January 39, 40, 50, and 55 strikes for a return of around 6% for just over 2 weeks. Not a huge return, but a high probability return.
CORRECTION COMING?
We could start to get a correction soon, but I also think that the market could run up a bit more. There are some nice bullish ABC patterns out there. I think that today did show weakness in a few sectors. The agricultural chemical stocks (MOS, POT, MON, AGU, CF) could start to roll over and sell off soon. Lock in some of those profits if you haven't already done so. Coal stocks look a bit bearish. GS and MS look very bullish and the financials might be getting ready to break out to the upside. LVS (needs a bit of confirmation) and WYNN also look pretty bullish. SLW look bullish. GDXJ looks bullish with some confirmation. AAPL looks to be breaking out again. For the rest of the tech sector, I like bullish trades on AMZN and YHOO. I really like the bullish patterns on MRVL and MU. AA has earnings coming up in a few days, but today's price action was bery bearish. You could buy puts on AA and place a stop above today's high. BA looks bearish (with confirmation). DIS, HPQ, IBM look very bullish. I like JBLU and LCC for bullish trades in the airline sector. SINA and CRM both look very bullish. CMG looks very bullish if the stock can get back above its 10 day ma. I think the market will move higher this week...and possibly though this next earnings season that starts in about a week. I'll be watching the price action very closely. If I see anything major about to take place, I will let you know.
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