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.