DÉJÀ VU

It seems like we were just talking about the 880 support level on the S&P 500. We are back there again and we are watching to see if it holds...again. Two things that were very bearish about today was the fact that the VIX spiked up and there was a continued movement to gold. We could possibly break support right here, but I see another possibility. This possibility ties into what I have been talking about lately...namely the big picture (bearish) verses the smaller picture (bullish). The markets seem to be in a bullish ABC pattern that began on May 8th. If this is true, then we should continue the uptrend...whether this support level holds, or we dip a bit below it before moving higher. If we do end up moving higher, I don't see us going much higher...at least for now. I think we could hit the 940 or 950 level in the S&P 500 and then sell off to possibly the 750 area (not in one day of course). This would create an almost perfect textbook inverse head and shoulders pattern (see chart). If that looks "too good to be true"...it might be. Based on my experience, chart patterns normally don't play out exactly how we expect them to...but at least it gives us a possible template to help us manage our trades. I would still urge caution in both bullish trades and bearish trades right now. Don't get caught with large portions of your capital in the market right now...but don't stay out completely. The sharp rise in the VIX over the past two days tells us that the market is expecting a possibility that volatility can rise. If the market breaks support right here and the VIX breaks out above the 34 resistance...look out! For bullish opportunities, look at financials tomorrow (FAS or XLF). They have very similar bullish ABC patterns compared to the market. Some of them are also at key support levels. If we do rally into the weekend, they could lead the way. If we break support and sell off, try puts on the market (SPY, DIA, QQQQ) or just sit out and wait. The bearish trading opportunity would really depend on how bad the sell off was...and how much volume was behind it. I still like energy (particularly natural gas), so keep watching that sector. Make sure they are "done falling" before looking at any new positions. With the big move in gold after the last few days, I would look to take profits...especially if the market starts to move up tomorrow. Hopefully you have taken at least some profits already. NFLX might still be a nice put option pattern, but the stock could rally back up to resistance if the market moves up. If you missed the move today, wait to see if a rally gives you another chance. If you got in today, be patient and don't panic unless it breaks above that resistance.