PREPARE FOR A MONDAY SQUEEZE

If this debt ceiling agreement holds, the market should open higher...much higher. I told you last week that many of the bears were shorting this market going into this weekend. Those short positions will likely need to be covered when the market opens tomorrow. That buying should move the market up dramatically at the open...maybe as much as 200 points on the Dow. You should also see the VIX drop down dramatically as the uncertainty of default has been lifted...assuming that the deal holds up. You should also see silver and gold sell off a bit. Hopefully these trades I recommended last week pay off well. If we get a big move on all these positions, take some profits off the table tomorrow...or within the next few days.

THE MARKET DOESN'T LIKE UNCERTAINTY

The market sold off today on continued fears that a debt ceiling resolution might not be reached by the August 2nd deadline. Although most traders feel that a resolution will be reached, they are forced to raise their cash in case a compromise isn't reached in time. Remember...these big institutional investors can't sell out of everything in one day if an agreement isn't reached. It looks like some are lightening up on their positions...just in case. The strength of today's selling did show that there is also active short selling going on. This could lead to a short squeeze when the debt ceiling resolution is reached. There might be a short term bullish trading opportunity as we near the August 2nd deadline...maybe Friday or Monday. The current move down looks like a possible "C" wave of a bullish ABC pattern, but the 1296 support area would likely need to hold. Usually when the market closes at the lows of the day (on a big down day), it tends to move lower. Since it had already moved down on Monday and Tuesday, it could mark some downside capitulation which could lead to a rally. In the short term, the market is very oversold. If you aren't already in your bearish trades, you shouldn't try to chase it here. SLV had another bearish engulfing pattern today. I think the uncertainty of the debt ceiling is the only thing holding it up. If it doesn't start dropping tomorrow, it will likely start as soon as the resolution is reached. The VIX made a huge move up at the end of the day. It makes sense. Many institutional investors are forced now to protect their positions in the face of this uncertainty. An aggressive trade here is to buy puts on the VIX or the VXX. The VIX could move a bit higher in the next day or two, but it will likely drop dramatically when the agreement is reached. This creates a low risk high reward trading opportunity. Since the market is also oversold in the short term, I also like a calls on the SPY, puts on the VIX type of a trade. I know there is a possibility that an agreement won't be reached and that we will then have economic Armageddon, but I think that is a low probability outcome. I think the market is set up right now for this to be an "easy money" type of trade. This doesn't mean we bet the farm on it (you can never ignore proper money management)...but it does mean that it might be a high probability trade.

SUCCESS STORY

Jerry,

Based on your recommendations and the techniques you have taught us in class...

... I entered call option trades on HAL and GLD recently. I was able to nab more than

60% on HAL in a week, and 93% in the GLD during the same period.

Better still, is how rewarding it was to make use of the trade management techniques

you have taught us, as I made sure to nudge up my stop loss along the way and

pull some profits on the way up.

Sincerely,

Davida

SUCCESS STORY

Hi Jerry,   I have another success story.  I'm new to trading but just finished course #1.  Thanks again for all your help and for your recommendations on your blog.  After we reviewed the HAL chart in class and you mentioned it in the blog, I bought 1C AUG 50 on 7/7 at $4.8.  On subsequent pull backs, I bought more on contracts 7/8 2C at $4.64, 7/11 2C at $3.65 and on 7/14 2C at $3.95 (for an average of $4.18, or $2927.99 investment).  On Thurs 7/21 I sold all 7C at $7.20 for $5024.15 (profit of $2096.15).  I've almost paid for the class already with this and the other trades I've done.    Thanks again so much!  Mike from CO  

UPDATE

Just a quick update tonight. Today was a state holiday so I am coming off of a three day weekend. Today's sell off was obviously due to the continued fear over the debt ceiling argument. I (along with most other professional traders) feel like this is all Washington theatrics and that a deal will definitely get done before the deadline. If the deal gets done this week, I don't know that the market will surge upward because I don't think that many traders are short the market. In other words, I don't think that there would be much of a short squeeze. I also think that there is still enough negative economic news out there to keep the market from surging upward. It really needs to get above the 7/7/11 high of 1356 before the bulls get more confidence. If the debt ceiling isn't increased by the deadline, load up on puts because the market will likely drop fast and furious. I'm not a betting man, but I'd almost be willing to bet my house that an agreement will be made before the deadline. Washington has been doing this to us so often over the last few years that it is almost comical that we keep falling for it. They create (or hype) a crisis that has a deadline, they wait until the very end to get it resolved, then they throw in all kinds of crap at the last minute and force everyone to vote for it because the future of the nation depends on it. As a trader, I try to focus on the probabilities and not the possibilities. I think that the probability is that the deal will get done. I don't see any picks that stand out right now, but I'll try to post some tomorrow. Although the SLV has moved a bit higher since my first bearish recommendation, it has also had three very bearish price action days in the last 8 days. I think that the uncertainty of the debt ceiling is keeping the price of silver (and gold) up. I feel that when the agreement is made, the SLV will start it's correction. The HAL trade is right at the target area. If you haven't taken any profits yet, you need to do so very soon. You can still hang on to a few contracts, but you need to take the bulk of your profits off the table. Like I said a few days ago, BIDU would likely rally on Google's earnings. BIDU had good numbers after the bell today and it should gap up about $10 tomorrow at the open. You could also see SINA start to rally as well. I also told you about NFLX approximately two weeks ago when it started showing some bearish price action. It disappointed in it's earnings release and will likely drop about $25 at the open tomorrow. That "riskier" bearish trade I made will payoff. One thing to look for this week....if the debt ceiling gets raised, look for a rebound in financial stocks. AXP, JPM, GS, MS, COF, WFC....just to name a few. AXP is the only one on that list that is in a strong uptrend...hint hint.

SUCCESS STORY

Hi Jerry,

I wanted to send you a success story from the past week. I didn't get in on the SLV trade the day you recommended it (wish i did). anyways, i bought last wed and thursday. I got stopped out yesterday on one of the trades and sold the remainder at the open this morning, after reading the blog. I didn't get the full % gain i was looking for, but ended up with about a 65% gain in a half of a week. Can't complain about that!!!! I don't fully understand what Chaz is seeing, but i'll listen to reasoning from people like ya'll who have way more experience than me, then look at my own trading plan and weigh all the data and make my decision as to what to do.

I also bought some QQQ calls yesterday after we hit the support level that the last virtual investing club market update referred to on the S&P 500. i'm up about 25% on those today--we'll see if that holds.

I also bought HAL and it's finally showing a small profit this morning too!!


THANKS,

Howard M.

ONE MORE THING...

SINA had a bullish engulfing candlestick pattern today. I recommended SINA last week ahead of the GOOG earnings. SINA is set to report earnings on August 1st. Today's price action could lead to a rise in the stock going into the earnings. I don't usually like to hold a full position going into an earnings announcement. If you get a decent rise into the announcement, you could sell half or most of your position and take your "earnings report" chance with a smaller position. You could use a regular call position or I also like the August 120/125 Bull Call Spread. The S&P 500 bounced off of the 1295 area today. We'll see if this holds as support for another rally up. If 1295 doesn't hold, it could be a quick move down to 1260-1265. Don't forget to check the silver update that is just below this update.

SILVER UPDATE

Despite the gap up this morning on the SLV, the price action today was relatively flat. The candlestick pattern formed at the end of the day is called a "spinning top". When it shows up at the end of an upward move, this pattern is considered bearish...although it does need some confirmation. The price action in the SLV last Thursday was very bearish. You usually don't see that price action without some sort of a pull back. This is why the gap up today was so puzzling. This is a good teaching experience though. As you saw with my NFLX recommendation, the downward move doesn't always occur exactly when we expect it. Sometimes these bearish price formations show up a few days before the drop takes place. The key is in recognizing the clues. I don't know if the SLV will drop here, but I wouldn't get too aggressive from the bullish side right now. I do expect a big move up later in the year, but there could be some shorter term selling before that move up takes place. If you do want to buy calls right now, buy them ATM and out to January. This way you have plenty of time for the expected upward move to take place.

Below are some comments that Chaz emailed me tonight. They back up what I have been saying:

I've been reading the success stories on your blog and I am a little concerned about the excitement over SLV . I'm too busy right now to write a regular commentary but felt I should at least send you a note. Please tell your readers to only risk money they can afford to lose in this market. I recently made it very clear that I DO NOT LIKE this market. It's dangerous. This is the kind of market that can be jerked out from under you without warning. SLV is NOT an independant entity. It is a REFLECTION of the commodity market. The September expiration is less than 4 weeks away. We may see a large correction. If we do, anyone in this market will get hammered. Anyone trading this market should take profits NOW and wait till expiration passes. Start buying the Jan SLV in or at the money calls the last week of August and HOLD THEM TO NEAR EXPIRATION. The fall rally is going to be huge.For the record, I LOVE the $40 calls. .....Happy trades my friend...........Chaz

SUCCESS STORY

Hi Jerry,

On your blog recommendation I bought 3 contracts of SLV on 7/7/11 at .99

On 7/11/11 I added to my position with 3 more contracts for .51, cost basis of .75.

I sold all 6 contracts on 7/13/11 for 2.30, giving me a profit of $930.00.

That’s a 206% ROI.

Keep up the blogging Jerry, I love it and count on it.

Thanks,

Kat S.

SUCCESS STORY

Hi Jerry,   I'm completely new to trading and in course #1 so I'm celebrating small victories.  Thanks so much for all of your help.  After your blog post, I checked out the charts and on 7/6 bought 2C of GLD for $3.5 and 3C of SLV for $2.31 (as well as HAL but this hasn't played out yet).  On 7/12 sold 2C GLD for $5.9 (approx profit $480).  On 7/15 sold 3C of SLV for $4.6 (approx $690 profit).  Definitely interested in Course 2.    Thanks!! Mike from CO  

SILVER

The SLV gapped up this morning as nervous investors flocked to gold and silver. The price action on SLV was very bearish on Thursday which is why I posted the put option trade. The close above 38 on Friday and the gap up today would indicate a more bullish outlook in the SLV. There are still a few conflicting signals out there which is why I'm not turning ultra bullish on silver yet. If the breakout is due to fears over the debt ceiling, the move could be reversed if an agreement is made within the next week. Watch to see how the SLV closes today. If we end up closing below today's opening gap up, it would be another bearish price action signal. If it closes higher than today's open, that would be considered more bullish. The opening price on the SLV today was $39.30.

SUCCESS STORY

Jerry! i bought SLV $1.55 jan /12 40calls 35 contracts then sold 20 contracts 2.55 2days ago and i bought GLD $4.90 sept 148 calls 7 contracts and sold $8.25 2days ago.

i love your blog.

i never have this kind of awesome outcome from any where.

i always check your blog and read several times until i understood since i am not pro like you.

i can,t wait to take your course 2 so i can.t do credit and debit spread.

thank you so much Jerry.

Christina J.

BEARS NOT DONE YET

First of all...thank you for the success stories! Keep them coming. I'm always glad to hear of your success...big or small.

Although I feel the market will eventually break out to a new high, I see more of a downside move in the short term. The sellers have been able to push the market back down after each rally over the last three days. This selling could continue for the next few days. I know we just completed a bullish trade on the SLV...but I'm now going to recommend puts. I expect the SLV to move back down to the lower part of sideways range that it has been in over the last three months. I'd use about $34 as a target. I'd stop out if the SLV closes (emphasize closes) above $38. I also like GFI as a put option trade. It has a bearish engulfing candle pattern today. The target would be around $13.75.

SUCCESS STORY

HI , Jerry its Nassem S. i bought 150 slv call at $.86 on Tuesday and sold them Thursday ( in 2 days ) at $3.85 . i invested 13k and sold for 57.8k so profit of $44,800 .thanks to you recommending buy slv on a pull back and i did . by the way u and chaz great , i appreciate you

SUCCESS STORY

7/14

Jerry,

On July 8th I purchased a Straddle on Google buying a 535 Call and buying a 530 Put. Looks like my Put may be worthless tomorrow but my call should be up 43 points from where I purchased as Google is up $66 in after hours trading.

I also bought a Bull Call Debit Spread after last weeks class and that should net me another $4,000.

I'd like to do this all the time!

Dolores

SUCCESS STORY

Hi Jerry. On July 12 I bought 40 contracts of the SLV August 36 calls for $96. I sold 20 contracts at market open on July 13 at $1.92 for 100% gain and I sold the remainder later in the day at $231 for a 140% gain. I generally hold longer than a day but this market has been snapping back and forth too much lately. I would like to thank you for the blog postings, I know they take time to post and it is very much appreciated.

Mike

SUCCESS STORY

Jerry:

Since the end of May, I have been in and out of SPY with puts and calls and recently SLV and GLD for a total return of 53 percent. Great money in a short amount of time.

Thank you and thank you for the time and work you put into your blog.

Lucy C.

UPDATE

I haven't had an update this week because there really hasn't been much to comment on. The market did pull back like I said last Friday...a little more than expected. However, it hasn't triggered many new buy signals yet. This leads me to believe that we might have a bit more selling before we start another move up. That would mean a drop below the 50 day MA. There isn't much room left for a bullish correction. If we drop below the 1295-1300 area, things will start to turn more bearish. Earnings season kicked off on Monday with Alcoa. The big hitters start tomorrow with GOOG and JPM reporting. Citigroup reports on Friday. Monday has HAL, IBM, and MOS. I'm looking forward to AAPL's report on Tuesday and INTC's report on Wednesday of next week. Intel and Apple have always been key reports for the tech sector. It will be hard to take out the May high in the market if the financials don't participate. The JP Morgan earnings tomorrow will likely tell us how the financials are doing. I haven't see the market this indecisive in a long time. The current trend on the S&P 500 is flat. The S&P 500 closed right at its 50 day MA today. There just isn't any clear trend to trade. The SLV and GLD trades worked out great. I hope you profited on them. If so, send me the success story and I will post it. If you do send me your success story email, please put "Success Story" in the title of the email and don't add other trading questions. It makes it easier to ensure that it gets on the blog. HAL is still a recommendation if you haven't already gotten in. I'd stop out if it moves below $50. The upside target is still around $58. They report earnings on Monday. Weird things can happen on earnings announcements so be aware that it could go either way after those numbers are reported. My bet would be that it would go up after the announcement, but there are no guarantees. There are a few "riskier" trades out there as we get into earnings season. If the results of GOOG are positive, it could create big moves up for BIDU and SINA. The options on these stocks are pretty expensive due to the big moves that these stocks can make. A debit spread (like a Bull Call Spread) can reduce that cost as much as 75% and still give you the potential for 80% to 100% returns. This is one of the advanced strategies taught in Course 2. That lower cost can dramatically reduce the risk in the trade. ZAGG looks like a good pattern. Health care stocks CVH and HS also look pretty good. These were all bullish picks so make sure you check to see if they are still above their 10 day MA tomorrow when the market opens.

OVERBOUGHT

The market is still in an overbought condition which makes new bullish trades a bit risky. Based on some Elliott Wave analysis, the market should start to correct within the next few days. This doesn't mean that the bullish trend is over...only that the market could correct a bit. A correction (even a small one) would provide a very good entry point to a lot of these stocks that have moved up over the last 10 days. It would also provide a good point to add to current bullish positions. If you are already in some call option trades, don't get freaked out if they pull back a bit in the near future. This doesn't mean that you ignore your stops...just that make sure that you don't keep your stops too tight. The market just had it's biggest one week move (last week) in two years...at least that's what I think I heard. It is due for at least a mild correction. I still like the trades (SLV, GLD, and HAL) which I recommended two day's ago. Any pull back should provide a second chance to get in...if you missed the first one. It looks like this uptrend will be around for the next few weeks, so you should get many other opportunities to make money. 1400 would be the next logical round number target on the S&P 500, with 1430 being the next big resistance level. Based on Elliott Wave analysis, a move back below 1295 would signal a very bearish outlook...but I'd probably turn bearish if it moved back below its 50 day MA within the next week or two. 1320 to 1330 would be my target area for a short term correction...if it happens within the next few days. I'd have to revise those numbers if the market moves significantly higher in the next few days. I did a somewhat risky counter trend trade on NFLX using a Bear Put Spread (debit spread). This is a strategy taught in the Course 2 Advanced Options course. Although Netflix recently made a big move up on the report of a move into South America, the chart shows it hitting the resistance of its upward channel. This, combined with the bearish candlestick pattern today, caused me to consider this counter trend trade. It also looks to be near a top based on some Elliott Wave analysis we did in one of my Course 3 classes today. If the stock moves above today's high, I will likely stop out of the trade. I only need the stock to move below $285 by the August expiration (August 19th) in order to make a 90% profit. The lower end of the channel is near the 50 day MA which is around $253. The stock is also very expensive from a valuation basis...and you know how much I love fundamental analysis (yes...I am being a bit sarcastic). I'm not recommending this trade to anyone unless you want to take on a riskier trade. If so, you better take responsibility for your decision. If you didn't understand the trade, you should not attempt it. Just make some money with SLV, GLD, and HAL...and plan on taking my Course 2 or Course 3 classes with the profits. Contact me at jerry@myoptionmagic.com if you are interested.

UPDATE

Not much that I like right now. I missed much of the move last week when I was recovering, but I probably wouldn't have trusted it much anyway. By the end of the week, we could see that the bulls were definitely gaining strength. Most of those bullish picks that I recommended several days ago have done very well. I wasn't expecting anyone to be in all of them, but hopefully you were able to make some money on some of them. If so, please send me the success story and I'll post it on the blog. We are still in shaky economic times, but we are also entering a more bullish time of the year in the markets. Earnings are coming up next week. Those earnings should give us a better idea of what to expect over the next few months. The market is a bit overbought in the short term and could possibly move sideways or drop a bit this week. This is why I don't feel the need to chase it right here. There are two patterns I like, but they are both still a bit below their 50 day MA. I like calls on SLV and GLD...at least for the short term. That could expand to a longer term trend outlook if they keep breaking above resistance levels. Short term target on SLV is about $38. On GLD it's about $152 to $153. I also liked the breakout pattern on HAL after a three month sideways correction. Initial target is about $58.