WHAT TO MAKE OF THE RALLY TODAY

I've received a lot of emails this morning related to the market trading up after such a bearish move last Friday. These post sell off rallies are very normal. Back in 2008 when the market dropped 700 points in one day during the financial collapse, the market rallied about 500 points the next day. We don't get scared by the rally unless it reverses the previous sell off. In other words, as long as the market doesn't rally to a new high within the next day or two, we'll assume that this rally is a set up for another move lower. You have heard me refer a lot to the price action from last April. If you notice the day that the S&P finally closed below its 10 day MA, you will also see that it rallied back up a bit over the next two days. However, that rally failed to push the market higher and the sell off continued. Today's rally should be light in volume and the VIX shouldn't move down very much. For those brave enough, you could use today's rally to buy more puts. For those that want to play it safe, you can buy more puts when/if the market starts to sell off again.

THIS IS IT

The VIX is up almost $4! Market averages are at their lows and about to close below the 10 day MA. Gold and silver are spiking. Unless something dramatic changes in the next 5 minutes then this is it. This is the confirmation for a market sell off. Look at the 50 day MA as an initial target for the S&P 500.

SHORT MARKET, LONG GOLD?

If it looks like the three markets will close below their 10 day MA's, you might want to consider buying puts on the DIA, SPY, and QQQQ and calls on the GLD. With all the unrest out there, we could see a pop in gold. You could also add silver by buying calls on the SLV. I don't see the buyers yet as we go into the last hour of the market. Let's see how this thing closes.

SELLING ACCELERATING TODAY

The market has been open for about 2 hours and so far the story is about the early selling. All three major indexes are below their 10 day MA right now. It is still early in the day, so I'm going to continue to watch going into the close. If we close near these lows, we'll need to flip flop again and buy puts. I would have liked to see more capitulation to the upside before getting a decline in the market, but we might not see it. The Dow hit its 12,000 and the S&P 500 got its 1300. This could be the sell off that I've been looking for. The VIX has spiked up significantly. Watch to see if the buyers come in late...like they've done several times in the past. If they don't, I'll be very confident that the expected decline is underway.

BEAR PARTY ON HOLD

Although the Dow hit 12,000 then sold off a bit, it looks like the market might stage one more rally before the Bear party begins. The Dow was mostly flat today, but the other indexes made pretty good moves up. The Russell 2000 (RUT or IWM) was up almost 2%. The Nadaq was up almost 1% and the S&P 500 was up about a half of a percent. The Dow Transportation Average (IYT) was up over 1%. The volume wasn't too bad. This leads me to believe that the market may rally a bit higher over the next few days ...especially with earnings season winding down next week. If we do rally a bit higher, here is a list of great possible bullish trades to take advantage of that move...again, these are bullish trades: WLT, KOL, ANR, MEE, CAM, CCJ, MDR, PH, WFT, XLB, XME, SCCO, GWR and SNDK. A special thanks to www.tradervibes.com for some of those picks. The market is still extremely overbought. If the S&P 500 drops or closes below its 10 day MA, we'll be back to the Bear party.

Gold and Silver Update

This post is from Chaz...a commodities trader that writes a monthly newsletter on the precious metals market. He has given me permission to post it on my blog. As a disclaimer...I (and Option Magic) are not responsible for the content or recommendations in this newsletter. Also...a lot of this information relates to trading the actual commodities. There may be some terms or strategies that you don't recognize. This update is meant to be an information guide for those of you that are trading gold and silver...or just the gold and silver ETF's like the GLD or the SLV. This commentary is opinion and analysis. You must still use good money management and trade management principles. You must also read the charts. No one...I'll repeat...no one knows the exact future of any event on Wall Street. You must still do your due diligence. Thank you Chaz.


Good evening traders. I recently received an inquiry concerning gold and silver stocks. Please pay attention here. The comments I make in this commentary are intended to relate ONLY to COMMODITY FUTURES. Specifically OPTIONS. They are NOT intended to relate to stocks or funds. These comments are NOT predictions. They are the most likely probabilities based on the most recent information available. The bear raid we are watching now will likely end tomorrow. My best guess is that the shorts will keep the gold price around its current range of 1332 and silver around 26.60 to 27.00 . The purpose of this is to insure that the gold 1340 (and higher) and the silver 27.00(and higher) options expire worthless. I noted with interest that the CFTC failed to implement its 60 day notice on position limits today. My guess is JPMorgan is begging for more time to unwind its massive short positions. It looks like they are going to get it. I don't expect much movement Wednesday but Thursday is another matter. There is substantial evidence to indicate that the next rally may be a big one. I think it is very likely we will see silver at 37.50 and gold above 1450. Gold may very well challenge the 1521 barrier. Everyone should still be in possession of all their options. I hope some of you were able to add to your positions at favorable prices. If not, Wednesday will probably be your last chance. When the rally does begin, its a pretty safe bet to expect it to rise rapidly. I will not be surprised if we see a whipsaw movement to the previous contract high. It might be a good idea to take a few positions off the table and ride the rest. Don't forget to roll out to the next month but wait for a little retracement to fatten your pocket. Might be a good idea to roll out by next Wednesday. ....Happy trades everyone....Chaz.....Jan 25,2011...8pm

DOW WANTS TO GET TO 12000

The late day rally showed how much the traders want the Dow to get to 12000. It wasn't a big surprise. It is only a few points from 12000 (23 at last check). See if it opens higher tomorrow then starts to sell off once 12000 is hit...or sometime soon after. The Fed has a report on interest rates tomorrow and the State of the Union address from the president is tonight. Could be a big day tomorrow (Wednesday).