SUPPORT BROKEN

The S&P 500 and Nasdaq have broken below their 50 day MA's. This is a sign that the sellers have taken control of the market. The Dow and Dow Transportation Index are lagging a bit, but they should break below their 50 day MA's soon. Look to start buying puts on the DIA, SPY, QQQ....especially on the market rallies. You can also look to buy calls on the FAZ and TZA. The market won't likely drop straight down so be patient with your trades. This doesn't mean that you don't set up stops, it just means that you might not get the move down as soon as you get into the trade. Make sure to buy enough time on your options. Don't use the "weekly" options. They are too risky.

A RALLY IN THE FUTURE?

The sideways movement in the market over the last few weeks has created a near perfect symmetrical triangle pattern on the S&P 500 and the Dow. Today's move down hit the lower rising support line of the triangle. If this support line holds, the market should start to rally and break out of the upper resistance of the triangle. If we rally up, the Dow could reach 12,400 before any significant drop takes place. If we break the support line of the triangle, we will likely start a larger move down. As a natural contrarian, I wonder if the triangle pattern will break out to the upside. So many people are seeing this near perfect bullish triangle pattern. Usually when most of the market is expecting a certain move, the opposite move ends up taking place. The week before Thanksgiving is usually a bearish week with the traditional "Santa Clause" rally usually taking place after Thanksgiving. In my 14 years of trading, I've never seen a significant market drop from Thanksgiving through New Years. Even in the financial collapse of 2008, we had a "Santa Clause" rally. A contrarian would view this as the perfect year for an end of the year stock market drop since so many people are expecting the market to rise. In terms of probabilities, I'd have to say that the odds are greater for another "Santa Clause" rally. If the market starts to rally tomorrow, I'll look to buy calls on the SPY, DIA, and QQQ. COST would still look good as a bullish trade and IBM would be a great bullish trade if it can break out above $190. PCLN might also break out within the next few weeks. If it breaks that support line, you might see me get bearish again very fast.

RANGE BOUND

The selling didn't continue after last Wednesday's drop and we didn't drop below those key levels. The market has been moving within a tight range over the last few weeks. I mentioned this possibility last month. The bulls aren't confident enough to push the market higher and the bears aren't confident enough to push it lower. So we will continue this sideways trend until one of these groups wins out. The volume has been low on both the up days and down days, so there really hasn't been any strong clues as to which side is winning. You can lose a lot of money when you get too aggressive in uncertain markets, so I will continue to recommend that we sit tight and wait. I can see a scenario where we have one more move up and I can see a scenario were we start a big move down. I'm not ready to flip a coin for my trades. The only trades I have on right now are Iron Condors, Credit and Debit Spreads, and Calendar Spreads. These trades are designed to work well in choppy or sideways markets. I cover these strategies in Course 2.

BIGGER MOVE DOWN COULD BE UNDERWAY

Today's move increased the probability that we are starting another move down. I'd still like to see the Dow break below about 11650 and the S&P 500 to move below 1220 before I really turn bearish. This doesn't mean that you can't start to enter some call option positions in TZA or FAZ...or put options on DIA, SPY, or QQQ. If this selling continues, there are many stocks that could really drop including AAPL, AMZN, BIDU, CRM, LVS, WYNN, and just about any bank stock. We had a huge spike in the VIX today. This usually leads to more selling...especially since we haven't seen any "panic" selling yet. The volume today was modest, but not huge. I'd like to see those levels broken on the Dow and S&P 500 and the volume surge to some higher levels. Keep in mind that today's move could have just been a "C" wave of a bullish ABC pattern that might have started at the end of October. If this is the case, we could end up rallying up above the October 27th high. If we have a strong move up tomorrow on higher volume, I'd look to buy calls on the SPY, DIA, and QQQ. If we are flat or down tomorrow, we are likely headed lower. We'll see what happens.

UPDATE

There hasn't been much to add in the last few days. We have rallied up on light volume. I don't see any major weakness, but I still don't trust the rally due to the light volume. If the market can break above the 10/27/11 highs on higher volume, I might start to turn more bullish. I've been mostly neutral for the last week and I'll probably remain neutral until I see some stronger signals...bullish or bearish.

SUCCESS STORY

Hi Jerry

It feels good to write a success story after a month of waiting , but no complains the stock market on October was very tricky and i was patient enough, but last Wednesday i bought some bearish trades and lost 50% of there value on Thursday them i added some more on Thursday and sold everything today Tuesday I approximately broke even in all trades but the shinning trade of 100 calls faz that i paid $2 for them and sold for $ 6.70 was great, made me $47,000

thanks,

Naseem

BEARS BE READY

I apologize for the lack of posts this week. I have been a bit sick. As you may know by now, I have a very weak immune system and I seem to catch every virus that goes around. The drastic change in weather didn't help either. We had a high of about 65 degrees on Monday, but it dropped down into the 40's since then. I'm not ready for winter. The market staged a rally today, but it was on lighter volume. The move down on Monday and Tuesday looks very impulsive. This could mean that today's move up was just a correction of the new downtrend. With the Dow and S&P 500 still above their 50 day MA's, I'm hesitant to call for a new downtrend. However...I think that if we close below Tuesday's lows, it will significantly increase the probability that we will move lower...much lower. With the debt agreement in Greece falling apart (I told you so...at least those students in my recent classes), this next move down could resume as early as tomorrow. There is a possibility that the market will try to move a bit higher, but that would have to happen very soon. A close below Tuesday's lows would likely decrease the probability for another move up. You could start to look at buying FAZ and TZA calls, but be careful. Look at the December options rather than November. If we do try to rally up a bit further, you could get stung pretty bad with November options. Also, try to limit your purchase. I'd look to buy a small amount and be willing to risk that entire amount in the trade...in other words, don't set a stop. The way this market is swinging back and forth, you would likely get stopped out on any stop that was set. This means that you better be willing to lose the money you are putting into the trade. You could also look at puts on the DIA, SPY, or QQQ. This is still not an area to get too aggressive...but we could be getting close. I'm still looking for a bit more confirmation. I'd really like to see the Dow Transports and Russell 2000 have a bigger percentage move down than the Dow and S&P 500. I'm still bearish on gold and silver and bullish on the dollar. I like calls on the TLT. If the market does end up rallying much higher, I like COST as a bullish trade. I'd like to see it break above about $86.50 first...as confirmation.