SUPPORT IS STILL HOLDING

The S&P 500 is still holding at the support area we talked about last week (1012-1017). We also had a nice rally into the close. The S&P also closed right at the 10 day moving average. If you are bullish, you will expect this support to hold so you would place a stop somewhere below that support zone. If you are bearish, you might want to wait until the market breaks below this support zone before trading. I got burned a few days ago when I failed to wait for confirmation. The RIMM pattern moved down a bit today but it is still sitting on the support of the triangle (both the lower triangle support line and the 50 day moving average). One stock that showed up on Jesse's MuscleStocks (www.orbisadvisors.com) a few days ago was SVA. It moved up 40% today.

STILL CORRECTING

The market still seems to be in a correction. Keep watching the 1012-1017 area on the S&P 500 for short term support. If we break below this area, the correction could end up being a bit deeper. Also keep an eye on the 10 day moving average. It seems the market has been testing it as support for the last two days. 1050 still remains the short term upward target. The market is acting like it want to get there. The RIMM pattern is still holding that support. The stock sold off a bit after it gapped up this morning (along with the whole market), but it still ended up closing a bit higher than yesterday. If you haven't tried them yet...check out Jesse's new MuscleStocks scan on the Market Trend Signal (www.orbisadvisors.com). He recently added this scan and the stocks have been performing very well. You still need to make sure you look at the chart (I don't always like all of the patterns) and try to avoid some of the stocks that have made huge moves the day before (wait for a pullback on those stocks). If you haven't tried this service yet, go to the website and sign up for the free trial. I use this service for a lot of my scans and stock picks. Have a good weekend.

NICE INTRA-DAY REVERSAL

The market was down early in the day, but managed to reverse nicely and finish up. Today's price action confirms my belief that we might have one more move up. The drop early in the day tested the August 7th high (resistance) and it held now as support. We will want to keep an eye on this level (around 1018 on the S&P 500). If we close below this area, it could stall the rally. A student (Alester R.) made me aware of a nice pattern. Look at the chart of RIMM. It is a textbook symmetrical triangle pattern. This chart sums up my outlook for the market right now...we could move up or down. I love the reward to risk on this pattern. The stock is currently right at a key support level. There is support from the 50 day moving average as well as the support line of the triangle. If it break this support, it could move down to the next support area around $60 to $63. If it break above the resistance of the triangle, it could move up to around $86. The key is to wait for the breakout (in either direction). A more aggressive trade would be to buy at this support (if it holds tomorrow) and place a stop below the 50 day moving average and support line. If the trade was stopped out, you could look to get back in and play the potential downside move with a put option.

ONE MORE MOVE UP?

Although I still feel we are near a top, the sideways movement over the last three days indicates there might be one more push up. I still feel that any significant decline will come after a decent sized gain...a sort of capitulation to the upside. There is some significant divergence in the RSI and MACD, but that doesn't mean we can't have another move up. Look at the 1050 area on the S&P 500 as a possible target. Keep an eye on the 5 day moving average of the S&P 500 to see if it holds as support.

TREND WEAKENING

Although the market closed up again today, there are signs that the latest uptrend could be weakening. For the second day in a row, the market sold off during the later half of the day. This market could continue to rise until most of that "sideline" mutual fund money has been fully deployed. The problem is that we won't know exactly when that happens. I can tell you this...as soon as that late money is in the market, we could be in for a sharp decline. I think those latecomers are the only thing holding up this market. That is why I don't trust this latest move. Some of you may disagree with me and keep trading the uptrend. That's fine with me and I'll be rooting you on and hoping that you have success. As for me...I'll be content to stay on the sidelines for a little bit. Since I am sitting on the sidelines, I may not have very long blog postings over the next few day...unless something big happens that requires an explanation or prediction. If nothing new happens, I might not post anything at all.

THE PRICE IS ALWAYS RIGHT

Sorry for not posting late last week. My wife had her 40th birthday and it turned into a three day celebration. We did get a 40 point move on the S&P 500...but it was up not down. I will admit that I probably jumped the gun on that call. I would have normally waited until we had broken below the 982 area (support), but I felt confident that another move down was underway. If anything, this underscores the importance of using stops. Every trader will have moments where he feels he is absolutely right. The stops are a "check" against that confidence. I had told you earlier that I could make an argument for an upward move, a downward move, and a sideways move over the next few weeks. That is usually a sign that the market could go anywhere. That is also a sign that the safest place to be is in cash. I will still reiterate that point. I was stopped out of my trades last week and I am now in a cash position. I will probably keep this position for a little while. I might get into short term trades here and there, but I will keep the bulk in cash. The further we drift higher...especially with not much of a fundamental reason for doing so...the more likely we will get a sharp and sudden drop when the next correction comes. This is what I was expecting last week. There is still a lot of sideline money coming into the market which is why it keeps going up. When that money is gone, we will come crashing down a bit. When I look at the potential reward for one more move up, it doesn't outweigh the risk of a big move down. This is why I am content to sit for now. I will still try to recommend things, but you should use a limited amount of capital for any trades right now. Let me show you the point where I knew I was wrong last week. We had bumped up against the 50% retracement (around 990 on the S&P 500) for a couple of hours on Tuesday. Wednesday morning the futures were down over 10 points on the S&P 500. It looked like it was going to be a big move down. After the gap down in the morning, the markets came roaring back. I was in class when the S&P 500 made a big move above that 50% retracement area. This is when I knew that the probabilities had shifted to the bullish side. Another key part of the analysis was that we had reversed Monday's big move down in three days. When the market (or stock) makes a big move (up or down), we expect to retrace part of that move before continuing it. If it reverses the big move in just a few days, it means that the big move was not significant and that the previous trend is more likely to continue. Since we made up the Monday drop in three days, it became more likely that the uptrend would continue. There is some possible resistance here (around 1035) from a 2001 support area.

DON'T BE FOOLED

Don't be fooled by today's rally. If you look at an intra day chart, you will see that today's move was choppy and rising...usually an indication of a sucker's rally. We retraced yesterday's move by 50%. I can't tell you exactly when we are heading lower... only that it is likely we are heading lower. The next target area is around 950 on the S&P 500. Today's rally provided a great opportunity to buy put options for the next move down. If you missed yesterday's move, you got a second chance today. I expected a rally today...just not as big as what we got. In hindsight, I think the larger-than-expected rally worked out just perfect. I was nervous that too many people were expecting another move down. When too many people expect it, it usually doesn't happen. Remember, the market will try to hurt as many people as possible. In other words, when the majority of the crowd expects something, the market will often do the opposite. As I read some of the headlines on the financial websites, I saw that many "experts" were dismissing yesterday's decline. They are expecting the bullish trend to continue from here. Although that could be possible, it is not likely. However, that shift in some of the crowd sentiment could help lead the market lower in the next few days. I feel as strong about the expected decline as I did about the expected rally just a few weeks ago. We saw how that turned out. Let's see if I'm right again. If I am right, somebody owes me a trip to Hawaii. I could use the vacation.

SUCKER'S RALLY

This looks like the possible sucker's rally I talked about last night. It is almost a perfect set up for another move down. Today's rally has retraced yesterday's move by about 50% (so far). I'll be paying close attention to the close. If you missed yesterday's drop, this could be your second chance.

HERE WE GO...

We started the move down on Friday, but it was impossible to know the future. We knew that we were near the top. If you listened to my advice last week, you are sitting on a large cash position and ready to make some money on a downward move. If you didn't...well...if you gamble long enough, you will lose...and possibly lose big. Friday we closed within the trading range between 992 and 1007. We sold off early, but managed to rally up a bit at the end of the day. On Thursday I was in a class where I made an argument that we could go up, down, or sideways over the next few weeks. When you can make an almost equal argument for each of those three alternatives, you know it is time to go to cash. As trend traders, we will always lose some money when the trend changes. I'm not faulting anyone for having some Calls going into today's move. The lesson is that we should have lightened up on our trades and built a large cash position...just in case we got a move like today. The large gap down didn't give you much of a chance. This is why it is important to lighten up on the trading when it starts to feel like the trend is ending. You really can't stop trading the trend completely (because it could still keep going up), but you've got to lighten up. The first warning sign was last Tuesday (August 11) when we broke below the 10 day moving average for the first time since the trend began. When that happened, you had to ask yourself "how much more gain could I get in this trend compared to the risk of a sharp reversal". There should be more follow through to today's move. We could possibly get a bounce early in the day tomorrow, but any rally should be looked at as an opportunity to buy puts. If we gap down in the morning, be patient and wait for a slight rally before buying puts. Don't chase a gap down. You will most likely get a second chance. The easiest trade is to just trade the markets (SPY or DIA). Do not use August out-of-the-money options. If you want to use August options, go in-the-money and get a delta of at least .70. It would be safer to use September options. Avoid buying puts on stocks like AAPL, GS, or any other "hot" stock during this last trend. They might continue to move down, but there are probably a lot of traders waiting to buy in on a pull back like today. They might not fall as far as other stocks. In fact, we will be itchin to get back into these when we feel the correction is over. The next support level to look at is around 950 on the S&P 500 (which is also the 50% retracement of this last trend and the 50 day moving average). Expect bearish to sideways movements for possibly the next few weeks. This first move down could just be a wave A. This would likely be followed by a choppy rise (wave B) that could be followed by capitulation selling (wave C). If the 950 area holds, we could be back to talking about a bull market. If it fails, we could dip below 800. Whatever happens, we'll make money. That's the great thing about trading trends.

NO BIG CHANGE

Sorry for this short posting, but there was really no big change from what I said yesterday. We did finally close above 1007 on the S&P 500 which was very bullish. We also closed at a new 10 month high. The next target to the upside could be around 1037. A student e-mailed me with a stock that has a very nice bullish chart pattern. It is TC. Looks like it could have a nice move in the next few days. Have a great weekend!

BUYERS CAME BACK

The buyers came back today and the 10 day moving average held as support. We also moved back up above the 5 day moving average. This could mean that we've had a small correction and we are moving higher. I will remain bullish if we can stay back above the 5 day moving average. I still think you should keep a larger cash position. The sell off during the last half hour of the market caused it to move back below the 1007 level. This area has acted as some significant resistance over the last few days. I want to see the market clearly break (and close) above 1007.

WHERE ARE THE BUYERS?

About this time last week we were talking about the strength of the buyers. Where are they now? We broke below the 5 day moving average today in the Dow and the S&P 500. We are now sitting on the 10 day moving average. If the market holds that support, it might continue the rally. The problem is that I don't see the buyers coming in as strong as they did last week. I don't think the 10 day moving average will hold as support. This doesn't mean that I am saying you need to buy puts. I think the smart move would be to get out of the market and go to cash until we get some clearer signals as to where we are headed next. The next support to watch is the 982 area on the S&P 500.

BACK TO 1007

We closed today at the 1007 level on the S&P 500. This was the previous resistance we were watching last week. Are we now testing 1007 as support? It's hard to tell right now. Earnings season is winding down and there aren't too many catalysts I see in the near future that can take us much higher. There is a Fed meeting this week that might move the market one way or the other, but nobody expects any surprises. We're still above the 5 day simple moving average on the S&P 500 (about 1004 on the S&P 500). Until we close below that average, I'm not going to bet against this market. I'm buying each of these pullbacks until I see some real clues that the trend might be reversing. If we close below the 5 day moving average, I will try to go to a larger cash position. If we start to move below the 10 day moving average or the 20 day moving average, I will start to look for put option trades or short positions in the market. I was expecting more buying to take place when we broke above 1007 last Friday. If we can't break above Friday's high (1018) within the next few days, I will doubt the strength of the breakout.

SUCCESS STORY

Jerry,

It’s been a while since I sent you a success story but thanks to your training and the state of the markets things have been going pretty well.

What has prompted me to write this is the performance of RDN today. My small trading account was up over $3,000 today primarily because of this stock.

Just a couple of other successful trades. I purchased Aug and Nov calls on CAT and closed out the positions when my profit was just over 100%. I should have held on because they would have doubled again. But all the targets were hit and I’m finding it easier to be a trader which I’ve learned has been one of my weaknesses. I still struggle with trade management but hopefully I’m getting better.

My account has been steadily growing but today the account grew about 13%. I still must close out to realize the gain but we are definitely going in the right direction.

Thanks for your help.

John O.

JOBS...JOBS...JOBS...

We're back to jobs again. The report comes out tomorrow and it seems that the market is waiting for this report. We dipped a bit below that 995 level on the S&P 500 but we moved right back up into the range between 1007 and 995. We'll see which way we break tomorrow. I have some calls on the SPY that I bought a couple of days ago. I bought a couple of puts going into today's close because I really don't know which way we will break. I can see good arguments for either breakout. The puts I bought help create a Strangle trade. These trades are used when you expect a big move (up or down), but you're not quite sure which way it will move. I'm actually set up to make a slight profit on a big downward move, or a bigger profit on a breakout to the upside. For those that want to learn this strategy, make plans to take our Advanced Option Strategies course (Course 2) where I teach the details of this trade. I can now sleep well going into tomorrow's report. I was hoping for a clue going into today's close as to the more likely direction, but we closed back in no man's land so I set up the Strangle. We did close right at the 5 day moving average on the SPY. The Nasdaq has broken below its 5 day moving average and is sitting right on its 10 day moving average. I go back to what I've said the last few days...the Nasdaq led this rally and it might be leading the pullback. If the Tech stocks don't start to rebound soon, I don't see anything else strong enough to keep the whole market from starting to move lower...and please don't tell me the banks will take over. That's a hard sell for me.

SUCCESS STORY

Hey Jerry

On 7/27 I bought 40 call contracts of Plum Creek Timber (PCL) for 1.70 I sold them today at the intra-day peak for 2.30 for a nice 2300 dollar profit.

Thanks

Keith H.

CONSOLIDATION

There was a bit of consolidation that took place today as the market moved back and forth. It tried to sell off in the morning, but the buyers came in again and held the 1000 level in the S&P 500. The longer we hold this level, the more likely it will be that we will breakout again (above 1007). Watch the 995 area on the downside. I think this is a key short term support area. If we break this support...especially in a sharp drop...we might begin a larger correction. It's hard to find new catalysts or reasons for the market to continue to go higher. CSCO's earnings were okay, but the stock sold off in after hours trading. Keep an eye on the Nasdaq. The Tech stocks started this move and they might signal the end of the move. The Nasdaq was down a larger percentage today than the S&P 500 and DOW. Again...this is not a bad area to take some profits and build some cash. If we do breakout, you can buy the breakout. If we sell off hard, we can look to profit on a small put position to the downside. If we move sideways....well..we will start all this again tomorrow. Here are some stocks from The Market Trend Signal's (www.markettrendsignal.com) new MuscleStocks scan: RDN (wait for a bit of a pullback after today's move), DRN, NTES, HA, CAR, and VNDA.

THE MARKET WANTS TO HURT THE MOST TRADERS

What was the intra-day high on the S&P 500 today?...1007. I told you there was a bit of resistance there (11/4/08 high). The buyers rushed back in again during the last 15 minutes of the day. Every time the market pulled back the smallest bit, the buyers took it higher. If we break 1007, we could get another big move. If you can't watch the market tomorrow, set up contingent orders so that you can play the possible breakout. On the cautious side...and I do have a responsibility to be cautious sometimes...I am concerned with how bullish the "crowd" is getting. For those that have taken my Elliott Wave course, you know how important it is to analyze crowd behavior. This clue is more advanced than the clues we use to analyze trend. It's a lot more intangible. We know that the trading crowd gets most confident at or near a market top. Almost every trader on the financial news shows today believes that the market is going higher. Almost every website is talking about how much further we can still go. The only ones that appear bearish are the ones that we know are short the market and we can see the stress on their faces as they try to give reasons why the depression is still around the corner. I've been through this a few times before and it feels the same every time. You feel like there is no way it can sell off right here because EVERYONE feels it is going higher. The reason why we are all bullish right now is because we are all long the market right now. We wouldn't be long if we didn't believe that we could go higher. The problem is that if there isn't any new money that can come it to "keep the party going", we will inevitably begin to drop. There are reports that some fund managers, that have been in cash or have been short the market, need to buy in right here so that they don't get left in the dust. This could extend the mania for a bit longer. This is why we will watch for the 1007 breakout. I want you to really pay attention to what is happening in the market right now. This will be a very valuable experience if you pay attention and feel the emotions. Listen to the predictions and how many people believe the predictions. Watch the price movements to see the buyers rush in during the smallest pullback. Take all of it in and remember this...THE MARKET WILL ALWAYS ATTEMPT TO HURT THE MOST PEOPLE (traders). I know that sounds sadistic...like the market is a living breathing thing...but that is one way to know what move will likely happen next...it is the one that will hurt the most people. If traders have bought 200,000 contracts of the August $15 call, then that stock will probability shut down at $14.95 on expiration Friday just so those speculators would lose on all those contracts as they expire worthless. My first warning signal is a sharp move below the 5 day simple moving average. I may start to cash in profits. If we sell off sharply at the end of the trading day and close below the 10 day exponential moving average, I think we might looking at a correction underway. Build cash if you can.

SUCCESS STORY

I agree with Fred and my wife is happy too. I finished classes in late Jan. and began trading in earnest in early Feb. at first I had mixed but modest results. Shortly after the first week in march I Gradually became more successful... and more aggressive as market conditions improved. I've made numerous trades both options and stocks at the rate of about 33 to 47 trades per quarter. Some have been Jerry's picks from the blog, some from Jesse's Market Trend Signal, some from Virtual Investing Club and some from my own research and charting. Since the end of that first week in march my main account value has increased by slightly over 76000.00 dollars or if you prefer slightly more than 298%. I will not hesitate to recommend this education to anyone interested in taking charge of their financial future. Jerry we appreciate your blog more than you know. Even though many of these trades are on my own through research and due diligence, it is because of the classes, the support, and the confidence that you provide for me and others that I would even attempt this.

Thank you again so much from me and my family

Keith H.

SUCCESS STORY

Hi Jerry; You're right, we as students need to start communicating more on the blog and not just leaving it up to you.So here goes. My biggest success story happened last night. My wife told me she was really glad that I had taken your class and my answer was, IT WAS WORTH EVERY DIME. Then we went inside and I pulled up my brokerage acc.After seeing that she wasn't really glad, she was really, really, really glad I had taken your class.

Up until mid March of this year I considered myself to just be getting the feel of this business. I had about 2000.00 in my acc. with some successes. The middle of that month I deposited an additional 10000.00 in my acc. and really went to work.My most profitable option purchase to date is WAT, purchaser at market on a Mon. morning and sold three days later for about 97% return. This I think was in April. Here are some others. HOG BIIB RDN GE USU SWHC STX CI FAS RBS TUP.

RDN and CI have been very profitable.

Long story short, With Jerrys help and education, I've had an overall increase in my acc. of about 70%-80%.

Yes I have made my fair share of mistakes, as will anyone.I consider it part of my business overhead but continually try to keep them to a minium.

. To everyone who reads Jerrys blog, Lets do our part and get in those success stories. He's doing a great job guiding us.

Fred B.

1000

I told you last Thursday that if we broke above the 990 area on the S&P 500 there was a strong probability we would make a run at 1000. We broke above 990 on Friday and we gapped up today and topped out at 1003. Do I think the market is overbought?...YES. Do I think you should short the market right now?...NO. Although it is difficult for me to buy into new positions here, I can't ignore what the market is telling me. Remember the characteristics of an uptrend? We are breaking above resistance levels and the support levels are holding. When the market does start to sell off, the buyers come back with a vengeance and push it higher. The path of least resistance right now is higher. This is when it gets hard to trust the trend. The danger is that you will finally buy into the trend just as it reverses. How do I decide what to do? Well lets look at the two main possibilities. First, I buy in right here and we drop down in a sharp pull back. Second, I short the market right here (or buy puts) and we move much higher. Since I don't know the future, I will look for the path of least resistance. I know I will lose money when the trend reverses, but there is no way to know when the trend will reverse. The choice is to keep losing money shorting the market and trying to pick the top, or go with the trend and lose money only once when the trend finally does reverse. This is definitely a dangerous area. What I do (and you should know this by now) is to go to a larger-than-normal cash position. I will continue to buy into the trend, but with only a small amount of my total capital. I want the cash so that I can take advantage of what will happen next. If we pull back and it looks like the uptrend will continue, I have cash available to buy in at the lower prices. If the trend does reverse and go down, I have the cash to take advantage of the move down...or just hang on to the money I have made. Earnings season is winding down and August is traditionally a slower month...but this market isn't following traditions. For trading opportunities, stick to the leaders until this trend reverses. AAPL, IBM, GS, JPM, MMM, GOOG, BIDU, and FCX. For those dying to short the market, at least let it show you some weakness. One of those areas where the probabilities could start to shift would be the 982 area on the S&P 500. If we break below this support area, we could be dropping to at least the 950 area. I see some possible resistance at 1007 (11/4/08 high). We'll see what happens tomorrow.

SUCCESS STORY

I bought the MON calls on 7/16 for 3.80. I sold on 7/23 at $6. I am kicking myself for not holding longer, but a sweet profit for a week. Thanks, Gregg

SUCCESS STORY

Jerry,

I greatly appreciate your time and effort in maintaining your blog spot as well as the education I received from your course training.

Since the beginning of July 09 I have increased my account value by 39%. I followed the ABC patterns as well as your suggestions and traded calls of AAPL, FCX, GS, IBM, QQQQ (as well as DIA, SPY and AMZN which I mentioned previously).

I look forward to your mentoring, thoughts and insight into the market during the week.

Thanks again

Rob