SUCCESS STORY

Hi Jerry,  I've really enjoyed your class so far!  I have a success story to share with you.  I purchased 10 contracts of a March call option of STX on 1/5/12 for $1.794 for a total of $1813.50.  It was a pretty steady gainer over the next couple weeks, almost doubling in size, but not quite, so I held on.  Yesterday, it gapped up and I was able to sell is at $8.74 per share for a total of $8720.33!  I've already made back the cost of the class, and now I'm looking for my next trades!  Thanks Jerry, Rocco P.

NEW BLOG ADDRESS. SWITCH OVER THIS WEEK.

This will be the last week that I will post to both blog sites. If you haven't yet switched, do so this week.

ARE THE BULLS GETTING TOO CONFIDENT?

The jobs number came out last week and the bullish sentiment seemed to increase drastically. One word of caution...there isn't a more manipulated government report than the jobs number....especially in an election year. I'm including both political parties in that statement. What usually happens is that the numbers come out....usually more positively spun then negative...then the numbers get revised downward as the month plays out. One suspicious observation of this report is that it doesn't factor in people that have simply given up in finding a job. This recent report also showed that many of the job creations were the so called "burger flipping jobs". The point I am trying to make is that there is a lot of misleading news out there. What is amazing to me is how the Euro zone crisis has somehow magically disappeared. One thing that I have learned over the years is that markets can sometimes get irrational...and they can sometimes stay irrational for a while. However, I have also learned that they will always move back to normal at some point. The internet bubble is a good example. During that period I heard old timers say that the market rise couldn't be sustained by these internet company's valuations. The younger crowd told these "old timers" that they were crazy...that they just didn't understand. They rationalized that this time it was different. They felt that these companies could rise on these outrageous valuations because of the internet. They said that internet technology was going to change how every company was valued. Well, it turned out that the "old timers" were correct...and that the irrational market soon began to behave rationally. The Nasdaq market has yet to retrace half of that move down from 2000 to 2003...and it's been almost 10 years. Today's market isn't in a "bubble" state like it was in 2000, but we can use those lessons in analyzing current economic conditions. When the "old timers" tell me that the Euro zone problems have not been solved yet...and that it is likely still going to get worse, I'm going to listen.

The Nasdaq market broke above its May high last week. The Dow came within 7 points last Friday. The S&P 500 is still a few points away. The market sentiment is turning very bullish...which can be a bearish indicator. The market is currently overbought and the VIX is down near its 15 point support area. Even if I wanted to go long and buy some stocks, I'd like to see some pull back to buy into. If we pull back on average volume and no major spike in the VIX, I'll conclude that the selling is just a pull back within the uptrend. If we sell off on heavier volume and the VIX spikes up above 20 to 23, I might look to buy some puts.

An update on some of the recent picks....MYL has made a nice move up. It has recently broken out and is in a secondary "buy" positions. That means that if you missed the first entry, this could be your second chance. PFE is still in a correction. You would want to wait for a "buy" signal on that one. The AMZN Calendar Spread still looks fine. It will be very profitable if AMZN drops a bit more going into the February expiration date. VHC still looks good for a bullish trade. It currently has a "hold" signal, but this could be a nice entry here...if you want to be a bit more aggressive. HURN also looks good, but you might want to wait for it to close above $40 if you are looking to get into it. For new trades, I like HD and INTC as call option trades. Keep a tight leash on these. If the signal turns from "buy" to "hold" look to get out. You could also use the previous low as a stop loss point. For a bearish trade, I think WYNN looks like it will continue to drop.

FACEBOOK ANYONE?

The talk of the day was the news of the Facebook IPO. The buyers were fairly strong until the last hour of the market. The Dow is nearing that 12,876 resistance area again. The more the market moves sideways right here, the more likely it will break out to a new high. The Russell 2000 was up over 2% today. That is usually a signal that the institutional investors are getting back into the higher risk trades...normally a bullish sign for the market. We'll see if there is any follow through tomorrow.

For some comic relief, you can view this YouTube clip:
http://www.youtube.com/watch?v=sGwNUPFVYAA&feature=related

NEW BLOG ADDRESS

The new blog is ready and you will need to start moving over to that new blog address. I will continue to post on both blogs, but only for a short time longer. The new blog will be free, but you will need to login to it.

ARE WE GOING LOWER?

Today was a strange day. After the buyers erased a 130 point drop yesterday, you would think that the market could stage at least a small rally today. Instead, the Dow dropped a bit and the volume increased. With the buyers unable to push the market higher today, you have to look at the possibility that a market correction could be imminent. A few weeks ago, I mentioned a pattern that was showing up near the end of earnings season. For the last few quarters, the market has rallied up during the main reporting period. Once that main reporting period was over, the market has gone into some pretty decent corrections. I don't know if that will happen this time around...and if it does, it will be impossible to predict exactly when it would occur. However, when you combine the current winding down of the earnings season with the price action today in the market, you could make the argument that a drop could be imminent. Throw in the end of the month as an additional factor.

The only trade recommendation that I have today is a calendar spread on AMZN. This one could be tricky since I don't know exactly how far it will gap down tomorrow morning. I'll likely wait for the first hour to finish before making the trade. I'll look to do the February/March calendar put spread about $5 out-of-the-money. Make sure to check the reward to risk. I might not end up doing it if the numbers don't look good tomorrow morning. I think that AMZN will continue to move down to about $167 in the upcoming days. Don't do this trade unless you have taken the Course 2 classes on Option Spreads. You do need to understand the trade set up and the risks involved.

NEW BLOG ADDRESS

The new blog is ready and you will need to start moving over to that new blog address. I will continue to post on both blogs, but only for a short time longer. The new blog will be free, but you will need to login to it.

BUYERS STILL FLEXING THEIR MUSCLES

The Dow was down over 130 points early in the day, but the buyers came back to close the Dow near even. It wasn't a huge bullish move (especially since the volume wasn't that great), but the indexes did manage to stay above their 10 day MA's. Since the sellers weren't able to hold their sell off, I decided to stop out of my DIA, SPY, FAZ, and TZA trades. If we do end up continuing lower, I'll look to get back into those trades. If we do start to rally, here are three stocks that I like...VHC, MYL, and PFE. WAIT UNTIL THEY SHOW A "BUY" SIGNAL. If we close lower tomorrow...especially if we close near the lows of the day, I will probably look to re-enter those trades on DIA, SPY, FAZ, and TZA. By the way....I said that I decided to stop out of those trades today. That doesn't mean that I got out with a loss. With the move down on Friday, I was able to get out of those trades today with a small profit...enough for a plane ticket and a couple of nights in Hawaii....which I could really use right about now.

NEW BLOG ADDRESS

The new blog is ready and you will need to start moving over to that new blog address. I will continue to post on both blogs, but only for a short time longer. The new blog will be free, but you will need to login to it.

AS CLOSE AS YOU CAN GET

We rallied up to 12,841 on the Dow today...just 35 points from that 12,876 high. Once it reached 12,841, it reversed and started to sell off. There was some buying at the end of the day, but the indexes still closed down. I don't know if we are going to drop here or break out from here. I could make almost an equal argument for both. All I know is that the reward to risk is fantastic right here for a bearish trade. I bought puts at the close on SPY, DIA, APOL, and MA. I bought calls on TZA and FAZ. The FAZ calls were due to the big sell off in WFC and STT. The financial stocks are looking vulnerable to another drop. The plan on these trades is to hold the bearish trades if we drop lower or stop out of them if the Dow moves above 12,876. I won't lose much if we go higher and I could make a killing if we drop lower...even if it is just an average drop. I just love that reward to risk. We'll see if the sellers can gain any strength on Friday.

12,876

This is the key level that we are watching on the Dow. If we break above 12,876 on the Dow, this uptrend will likely continue for a while. If we start to sell off, we could be in for a big trend reversal. Today looked like the start of a pull back until the buyers came in at the end of the day. We'll see how the price action looks tomorrow.

THE RALLY CONTINUES

Today was another strong day for the bulls. They managed to close the market at the highs of the day. The volume remains steady. It still looks like the market could move a bit higher for another week or so. If you want to take a chance on some bullish trades, I like CLH and KOG. Both have been outperforming the market and both appear to have completed recent corrections. For a bearish trade...look for BIDU to move lower. It will often move with Google. With Google's likely drop tomorrow, you should see BIDU move lower as well.

ARE THE BULLS TAKING CHARGE?

Today was a victory for the bulls. They managed to push the S&P 500 above 1300 and above the 1295 resistance. The Nasdaq broke above its October high. The Dow is still at that trend line, but it closed near the high of the day...and on decent volume. The weakness I saw over the last two trading sessions was erased today. I'm still not ready to fully join the bulls. If we can break above 12,876 on the Dow, I will likely jump back into the bullish camp. This doesn't mean that I won't consider any bullish trades in the near term. There is an earnings pattern that has developed over the last several months. Just about every earnings season (January, April, July, and October) has seen a bullish trend through the main reporting period. In almost every case, the earnings season rally was followed by a sell off. Some of the sell offs were pretty big. With today's move, I would expect that pattern to continue. Since we are just entering the main reporting period, that means that the uptrend could continue though the end of the month. I've joked with my classes that the minute I turn somewhat bullish is the time when the market will crash. If this ends up being true, I'll immediately start the "Opposite Jerry" blog where you trade against every prediction I make. There are plenty of reasons to remain bearish in this market, but the "price is always right"...and the price right now is going up.

THE CALM BEFORE THE STORM?

The market just finished a week where it basically did nothing. If the chart looked flatter, I'd see it as a sideways move that was setting up for a move higher. Because it hit a higher high on Tuesday and had a bearish looking day on Friday, it could be a possible reversal. We are still in that key resistance area. As we hit that area last week, I started to to look for a catalyst that would either move the market higher or push it lower. There really wasn't any major news out there until Friday afternoon. On Friday, we started to see news out of Europe with France and Italy being downgraded. We also saw some bearish news out of China. We'll see how the market reacts to these news items tomorrow. The market hasn't been following any normal patterns lately. I've talked about the weakness in the previous market leaders and some of the bearish price action that has show up on several stocks. It feels like things are about to explode lower. The problem is that it is impossible to predict exactly when the break will start. There is a quote on Wall Street that I will paraphrase since I don't remember the exact wording. It says something like "the market can sometimes stay irrational longer that you can stay solvent". I really feel like this is an irrational market. There is no way that the problems in Europe (and Asia for that matter) will have no impact (or little impact) on our economy. It is only a matter of time before we see that impact. There is a reason why I have been preaching patience for the last few weeks. It is the smart thing to do. This could be the week that something happens. Option expiration is this Friday and the markets have been quiet...too quiet. We'll see if it is the calm before the storm.

NO CHANGES FOR THE BLOG...YET

I've received a lot of questions about the future of the blog. I will get answers to you as soon as I know them. Any changes will be announced on the blog (this blog). Please do not send me any emails with questions about the future of the blog. They are starting to take over my regular class email account. For those that have sent me your names and email addresses, I will let you know when your free webinar will be...which will likely be as soon as I can fit it into my schedule. It will probably be later in January or early in February. If you haven't sent your name and email address, please email it to myoptionmagic@yahoo.com. Do not send it to my other email accounts.

The market is still moving somewhat flat. I haven't seen any strong signals that indicate strength from the sellers...or buyers. It really does look like everyone is waiting for the next move...including myself. VHC has a nice possible bullish pattern, but I'd still prefer to wait and see if the market can breakout on the upside first.

SUCCESS STORY

Jerry,

FYI, I am into some option trades that are really doing well....bought some NFLX call options late last week after MTS posted a buy signal. Paid for my tuition in 3 days!!!!!!

Scott A.

RESISTANCE?

The market has basically hit the resistance area I've talked about for the last couple of months. We could see a reversal at any time. There have been a lot of conflicting signals in the market over the last few weeks. It's been my experience over the years that conflicting signals are often a result of market manipulation or other internal activity. When I use the term market manipulation here, I'm talking about internal buying and selling activity...not necessarily illegal activity. The stock market is a game. The professionals will often make it look like they are buying when they are secretly selling or dumping stocks (and vice versa). Alcoa is a good example. All I've heard over the last 24 hours is how good those earnings were. Yet when you look at the price action of the stock today, it looked like some heavy selling was taking place. Google is selling off. Apple is looking weak despite making a new all time high. AMZN is broken. IBM and Google both have sold off after breaking out to new significant highs. Will CAT follow this same pattern? I think it will...at least that would be the recent pattern. LULU traded very bearish (for the day) after gapping up big at the open. ....but the market goes higher.

If this is an attempt to prop the market up a bit longer, it probably won't last. I don't have a high probability trade yet, but we'll see what happens over the next few days. It's tough to be patient, but you're trading account will thank you later.

EARNINGS SEASON

With the Alcoa (AA) earnings after the bell today, we have officially entered into "earnings season". The earnings should be weaker due to the problems in Europe over the last 6 months. We should start to see some of the affects of the global slowdown start to show up into some of the earnings. Be careful not to look at just the numbers that are released...or especially the initial "hit" or "miss". Many companies lower estimates earlier in the quarter only to come in on earnings day and blow away those lowered estimates. It is part of the Wall Street game. I don't usually care about the numbers that are reported. I'm more interested in the movement of the stock after the numbers are reported. I don't usually like to get into trades before the announcement (although this can be highly profitable...IF you are right). I think that trading the announcement is one of the biggest forms of stock market gambling due to the fact that the stock can literally go anywhere on the announcement...whether the numbers are good or bad. I love to try to read the institutional reaction to the numbers to see if they are buying the news or selling the news.

The market has moved a bit sideways over the last few trading sessions. This leads me to think that the market still has one more push up to those levels in the previous postings. This doesn't mean that I'm bullish on the markets...at least not yet. Google's move down today was very bearish. The VIX was up today on an up day in the market. This doesn't mean that the market will crash tomorrow, but they are both warning signs that a sell off could be coming soon. With earnings season underway and no news out of Europe, any sudden negative news could reverse this latest uptrend. That said...I'm not going to try to pick a top. I've tried that a couple of times over the last few months. The overall trend in the markets is still up. Even though Apple reached a new all time high today, the price action is starting to look bearish as well. All of the leaders in the market are looking more bearish...even though the market continues to move upward. I can see a scenario where we gap up or move up strongly within the next day or two, then suddenly reverse downward. We are about 108 points away from 12,500 on the Dow. I'll be interested to see how we trade if we reach that resistance area. We'll see what happens. I'm still not recommending anything yet...not until the market confirms its next likely move.

MARKET HITTING SIGNIFICANT RESISTANCE AREA

I hope everyone enjoyed their holiday...and I hope you are looking forward to a great year. The major indexes finished the year where they started which hasn't happened since 1970. The bad news is that the sideways movement hurt trend followers this last year. The good news is that it's been 40 years since we've seen this type of non trending environment. Here's to the hope that we won't see it again for another 40 years...I should be dead by then. Now that the holiday vacations are over, I would expect the market to start trending again. The big question is which direction will it go? I don't think anyone in the market knows that answer for sure right now...at least not with any sort of conviction. The choppiness of the market over the last few months has left both bulls and bears a bit wounded...no matter how smart or successful you are. These are often times when people start looking for the next guru or stock market genius to come in and save the day with their revolutionary trading system. Don't fall into that trap. Every trading system will get knocked around by the market at one time or another. This is what makes the market work for so many people. We are at another critical area in the market. There is a trend line in place that the market has reacted to for most of the last year. This trend line would suggest that the market is nearing resistance and should start to move lower soon. The trend line coincides with the resistance levels that I mentioned back on November 30th. If the market is going to turn lower, this would be the area where it should turn. There is a chance that we could move a bit higher and still be within this resistance zone. The numbers I posted on November 30th were about 12,500 for the Dow and about 1295 for the S&P 500. If we break above these levels, we would likely see the 50 day MA move above the 200 day MA on the S&P 500. That would be a pretty strong bullish signal and would suggest that the trend might continue higher for a few more months. As you already know, I am mostly in the bearish camp. This doesn't mean that I won't switch to bullish if it looks like the trend is clearly moving higher...and the key word there is "clearly". I don't think anything is clear at this time...bullish or bearish. If we break higher, I like GOOG as a bullish pick (that was a significant breakout when it moved above that $630 resistance). If we turn lower, I like PNRA as a bearish pick (thanks to Naseem for making me aware of that pattern). PNRA shouldn't get back above $145 anytime soon. The initial downside target would be around $130...with $115 after that.