BUYERS ARE BACK...AT LEAST FOR TODAY.

The buyers did come back today, particularly in the tech sector. CREE had a good earnings report and was up almost $6 in after hour trading. This could rally the SMH tomorrow. It was nice to see a move up today in the SMH. I probably won't get bullish again in the chip sector until the SMH closes above Friday's open. AAPL was up $9. IBM took a hit after they reported after the close. It will be an interesting day for tech stocks tomorrow. HOG rallied up a bit today, but I think this only gives you a second chance to get into your put options before Friday's earnings report. With the election results in Massachusetts, look for healthcare, pharmaceutical, and biotech stocks to continue their rally. I like the patterns on AET and ESRX, . For a nice bearish pattern, look at BJ. They don't report earnings until March, but that is a beautiful bearish ABC pattern with a lot of resistance. Watch BAC. They report earnings tomorrow (Wednesday) and they have a nice bullish ABC pattern finding support at the 50 day MA which is rising. For clarification...that would be a bullish trade on BAC. We are at the resistance area of a range in the S&P 500. The shorter term range is between 1130 and 1150. With this small sideways trend, the odds are high that we will get at least one more move up. If we happen to move down to that 1130 area in the next day or so, get ready to load up on some call options to take advantage of this possible break higher. If we break higher tomorrow, I might hesitate to load up on too many new call option positions for fear that a correction might soon follow.

CORRECTION COMING?

There is definitely a reason to be bearish after the price action on Friday. Intel had blowout earnings after the close on Thursday, but the market (and the chip sector) sold off on Friday with higher than normal volume. With the SMH closing at the low of the day on higher volume, I would expect the support at $26.92 to be broken and possibly get a close below the 50 day MA. We should know a lot at the open on Tuesday. With the market closed today (Monday), it's given the professionals three days to digest the Intel and JP Morgan earnings. If the buyers show up on Tuesday, it could mean that the market could rally up to a new 52 week high...at least over the next few trading days. If sellers dominate the day, we could be in for a much larger correction. If the market can't get excited by the Intel numbers, I can't see it getting excited by anything else during this earnings season. If we do sell off tomorrow, start looking at some stocks that are trending downward. I've told you about BBY and HOG (HOG reports earnings this Friday). I will try to post other bearish patterns as I see them. The VIX traded higher on Friday, but closed off of its high. I still the the 17 area as a key level. If the VIX goes higher tomorrow (especially if it closes on the high of the day), we could be in for a larger sell off. If we move lower and close below 17, we could end up getting that new 52 week high. The lower volume in the market during the first two weeks of the new year concerns me. I just don't see the institutional investors buying or selling this market. They might just be waiting for the Q4 results, but that could create a crowded exit if they don't like what they see. That is why I'd be concerned about those Intel earnings. If that didn't create institutional buying, I don't know what else will. Tech has been one of the main leaders of this rally over the last year. It could be leading the market down right now. Pay close attention to the tech earnings this week. IBM (Tuesday), CREE (Tuesday), EBAY (Wednesday), GOOG (Thursday), and WDC (Thursday), just to name a few. AAPL is scheduled for next Monday (Jan 25th).

Also...I'm still having some trouble with my e-mail. I'm hoping to get it fixed tomorrow (or at least in the next few days). If you have sent me e-mails, please be patient for my reply. You can also plan on asking me questions in class this week if you have a session scheduled. Thank you for your patience.

DOLLAR STILL HOLDING SUPPORT

The dollar/commodity trade is still intact as the dollar holds its key support and commodities start to sell off. Most of the patterns I recommended on Monday still look good. Intel (INTC) will be the big topic of conversation tomorrow. They report earnings after the close and are expected to hit their numbers. I don't really want to play INTC directly. I like the semiconductor index (SMH) or other stocks within the sector. I like the pattern on MCHP (thanks Dangelo for that one). Both of these would move nicely if INTC beats expectations. I'm also starting to get bullish on RIMM. I'm bullish for the longer term (based on the weekly chart), but I'm starting to like the shorter term pattern. I'm going to go ahead and recommend this for a bullish trade....but with a tight stop below its 50 day MA. The trend (based on the 50 day MA) is flat, but I really like the reward to risk right here...and the longer term pattern.

EARNINGS SEASON HAS BEGUN

Every three months, companies report their quarterly earnings. Most of the S&P 500 companies report during the same 3-4 week period. This period is referred to as earnings season. The big earnings months are January, April, July, and October. The period starts about a week into those months and ends about four weeks later. The earnings in January and April often cause the biggest market moves because January earnings reflect the 4th quarter of the previous year and April earnings reflect the 1st quarter of the new year. These are important barometers as to what the future direction of the market might be. Alcoa (AA) typically begins earnings season. AA reported today after the close and missed pretty bad on their 4th quarter target. This led to a sell off in Alcoa in after hours trading. Besides Alcoa, there are many other signals that the market will be down tomorrow. Let me go through some of them. First, commodity prices are showing a possible top after a recent rally. Most commodity related stocks (oil, gold, agricultural chemicals, etc) gapped up on their open and immediately started to sell off. That (by itself) is not always bearish, but it does signal possible weakness...especially after a run up in price. Second, the dollar index (UUP) gapped down at the open, but it is sitting on a very significant support area. If this area holds, we should see a rally in the dollar over the next few days. This would add to the selling pressure of commodities...and quite possibly to the overall market as well. Third, the VIX also gapped down at the market open but immediately started to rally. Remember, the VIX often has an inverse relationship to the market. If you look at a long term chart of the VIX, the 17 area is a very significant support/resistance area...probably THE MOST SIGNIFICANT area in the last 10 years. The fact that we gapped to, then rallied up from this significant level, tells me that we could be in for a sell off over the next few days. Also, the price action of today's candlestick on the VIX is very bullish. It finished up from the opening price, but still down compared to the close on the day before. This often signals a bottom and a possible trend reversal. A VIX that is trending upward often means a market that is trending downward. Combine all that with a sentiment indicator used by contrarians. The percentage of investment advisors that are bearish on the market is at its lowest in several years...even lower than after the financial and market collapse at the end of 2008. That means that most investment advisors are bullish on this market. If you look at that news as a contrarian, you would believe that the market is in a great position for a sell off...maybe a significant one. I'm not calling for a significant sell off...not yet anyway, but when this is added to those other market conditions, it helps to make a pretty good argument. Now keep in mind that I am sometimes a bit early on my predictions...and I do reserve the right to change my prediction (even suddenly) if the market tells me otherwise. Like many other professional traders in the last 6 months, I have been beat up at times when I have bet against the bull market. This is why I am keeping my prediction to just a pull back and not an outright collapse. This is also why you can choose to just sit out if the market does drop and look to go long if it gives more bullish signs in the future.

Now...how do I trade this information. First, find some down trending stocks to buy puts on. Be careful not to by put on up trending stocks...at least not right now. That can be a risky game meant for more experienced traders. BBY might be okay, but you might have missed a lot of the move if you are just getting in now. A much better pattern is HOG. I also like TRA for puts. If you still want to buy calls, look at the UUP (dollar index). You could also buy puts on the overall market using the SPY, DIA, or QQQQ. For gold stocks, look at puts on NEM, AEM, RGLD, and ABX if they get back below their 50 day MA (that is key confirmation by the way...don't ignore that). I do have a couple of bullish patterns that I like, but they would need some confirmation in light of the possible bearish market outlook. They are PCLN and SKYW. Confirmation for me would be that the 50 day MA needs to hold as support (as well as any other support levels that might be involved) and the stocks would need to move above their 10 day MA. Some financial stocks could be added to this put buying list if they end up closing back below their 50 day MA. I also like XLU as a possible bullish pick.

MANY OPINIONS ON AMZN

I was amazed at the amount of interest in my AMZN pick from last night. This has been the most feedback I have received on a pick since I started the blog. Let me have a chance to clarify my outline and reasons for the trade. First of all, you know that I always like to get some confirmation before getting into a trade...move above a 10 day MA, break of a support/resistance line, or a big bullish or bearish candlestick pattern. Many e-mails pointed to a possibility that AMZN could temporarily break below its 50 day MA and find support at $128. If this latest move is a "C" leg, then it might not be done going down until it hits that $128 area. The confirmation that I am looking for is the $137 resistance area. If the stock can break above that price, it could signal a stronger bullish move. If it fails to get above that price in the next few days, we will move on to bigger and better things...like BBY. BBY is a bearish pattern sent to me by one of my students (thanks James P.) I really love this pattern...which sometimes concerns me when it seams so perfect. BBY broke below its 50 day MA on a strong move down in December. It then has "chopped" back up to it in the formation of a bearish ABC pattern. You combine that with the strong horizontal resistance at $41.50 (tests on April though May of 2009 along with touches in September and October) and the diagonal resistance (upward trend line starting in July) and you have a great reward to risk trade. Any stop above $41.50 would probably work. As for the profit targets, there is one at about $39, but the best ones are at $38. $36.35, and $34.50. This is a great reward to risk pattern. Thanks James!

HAPPY NEW YEAR!!!!

Sorry it took me so long make the first posting of the new year. I hope everyone had a great holiday season and that you're ready to get back to work. I have received many e-mails over the last few days asking me what my opinion is on the big Monday rally. My opinion is that I am cautiously waiting to see what happens over the next few days. I don't like the current position of the market for any aggressive buying. We are back in a kind of "no man's land" on the chart of the S&P 500. All I can say is to be very careful with your trading decisions right now. This is a traditional time of the year when we get bombarded with opinions and commentary as to what is going to happen in the market for 2010. Keep in mind that most of these traders and analysts are being paid to have an opinion...especially during the start of a new year. How do you know which opinions have been well thought out and tested as opposed to those that were thrown together on a whim because the trader needed to beat the deadline. It is normal to feel like you need to do something impulsive during these first few trading days of the year. Some of the e-mails I've received over the last 24 hours have displayed the tone of "I'm missing the move, what should I do?" Professionals know that this is a time of the year when the amateurs are anxious to get into the market. They are practically begging for advice and direction...and the media markets (like CNBC) give it to them. Before you get caught up on believing all those opinions, see if you can get access to the predictions that were made this same time last year. See what type of success or failure that you would have had if you followed that advice. Many were predicting a very dire 2009. They were talking about possibly moving below 500 in the S&P 500. There was talk early on about the strength of the Biotech and Pharmaceutical sectors as possible leaders out of the decline. 2009 went almost nothing like what the "experts" thought would happen. It will probably be much the same this year. Trust the Trends!!! More so now than at almost any other time of the year...Trust the Trends. If you hear a positive analysis on XYZ stock and the chart pattern of XYZ stock looks great...trade it. If you hear a positive analysis, but the chart looks terrible...run from it. Move on to a trade that gives you the best chance of winning. I know you want to get your money to work starting this new year, but you must be smart on how and when to do that. You will get plenty of opportunities to make money this year...if you are smart. Be patient...resist the urge to just jump in because you feel you're missing out. I'm okay with you listening to opinions (I do it myself...and you are listening to me offer my opinions right now), but make sure you trust what the chart or the price action is telling you. Hope this helps. I do have one pick for today's post. I do like the current reward to risk position of AMZN. There are probably many others, but I'm still getting back into the swing of things. If AMZN holds that 50 day MA, it could quickly run up to around $145.

SUCCESS STORY

Happy New Year Jerry!
I completed your basic option course in November and have been testing the trading waters on a small
scale. Some of my successes:
aapl @ 7.06, sold @ 11.04
aapl @ 5.69, sold @ 8.81 
seed @ 1.43, sold @ 2.39
xto  @ 1.43, sold @ 5.07
Of course, not all of my trades have been winners (especially GS).
Thanks again for all your guidance.
Shirley.