199.89

I'm sorry for being so far off. I said 200 points yesterday and I fell short by .11. Let's be realistic here. I didn't predict a 200 point rally yesterday...but I did point out that if we rallied back hard (like a 200 point rally in the DOW), we would need to consider a continuation of the uptrend...and that the break below the 50 day MA could be a false breakout to the downside. Now I don't want to cause a rush back to bullish positions. We probably need to see if there is going to be some continuation tomorrow. The fact that we completely reversed Wednesday's sell off was impressive. We are back above the 50 day MA on the S&P 500. If we can get back above the 10 day MA (which is currently at about 1069), I think we could rally past 1100 and go to a new high. However...if this scenario does play out, I would only trade the move with a small percentage of the account. It feels like we are nearing a top. I will trust the trend, but I will also try to manage reward to risk. If I feel like the reward for staying long isn't work the risk of the market correcting, I will reduce the amount of money I have in trades and keep a larger percentage in cash. The thought is that if we really move higher, it would only be an opportunity cost. If we do sell off hard, it could save my account and allow me to have most of my money ready to play the next uptrend. I'm also watching the VIX right now. The VIX is the volatility index. It dropped significantly today (as the market rose), but it pulled right back to its 50 day MA. I'll be watching tomorrow to see if it drops below that average, or if that average acts as support. Also, the dollar (UUP) is sitting at a key support level as well. If the UUP breaks below 22.55, you should see commodity stocks rally hard. These would be gold, oil, copper, natural gas, etc. Do you have your watchlists set up? APA bounced off its 50 day MA, this could be a great play if the UUP continues to drop. Same with APC. Look at the GLD or AUY for gold. FCX for copper. Technology has been really weak during the last sell off and it didn't rally as much today. I might avoid these stocks right now...but I reserve the right to change my mind if things change in the next few days. A word of caution before I close...on September 28th we had a strong snap back rally...one day...which led to another move down. I'm not expecting that here, but it is worth watching. Also, keep an eye on the RUT (Russell 2000) and the DJT (Dow Transportation Average). The RUT didn't wipe out Wednesday's losses today. The DJT exactly reversed yesterday's losses...but didn't go further like the DOW and S&P 500 did. What I'm looking at is to see if these averages are leading or lagging...they usually lead, especially at tops.

IS A RALLY IN THE FUTURE?

The market has sold off pretty hard over the last four trading days. The Dow is the only major average that hasn't broken its 50 day MA...at least not yet! The market is in a position where it could bounce a bit...maybe tomorrow...maybe in a few more days. If it bounces up tomorrow, you should use that as an opportunity to get out of any recent bullish trades where the stock has broken below its 50 day MA. In other words, it may provide a second chance for you to stop yourself out of a trade. If we don't bounce tomorrow, I think it would be risky to continue to hold those losing trades in the hopes that there will be a rally to bail you out. Don't plan on a rally to bail you out! We may get a rally, but it probably won't be big enough to bail you out...just possibly lower the loss. If we do get a rally tomorrow (or within the next few days), look for possible put option trading opportunities. Ideally the market would rally up in smaller increments over a few days. This would create an ideal pattern for another move down. If we rally back hard...like a 200 point rise in the DOW...then I would be hesitant to buy puts out of fear that the recent break below the 50 day MA could be a false breakout. In other words, we want to watch the price movement over the next few days. If we get a choppy and rising price action, we will very likely head lower. I don't see any patterns that I like right now. I don't trust any bullish trades right now...not even the ones with nice bullish ABC patterns. I'm not ready to recommend bearish patterns just yet, but it could be soon if the price action sets it up. Remember to watch for the trend characteristics that I taught you in the course (lesson 3). These are the clues as to what could happen next.

GO TO CASH!!

The market has broken down below its 50 day MA with about a half hour to go until the close. This was anticipated due to the conditions pointed out in the last posting. Many individual stocks have moved below this important trend indicator. Now is the time to make sure you have a large cash position. It is not the time to try to overcome any major draw downs. If you try to get back your losses right now, you will inevitably increase the draw down. The trade here is to wait for the next little rally and look to buy some puts. Although the overall trend hasn't turned completely down, short term put options will probably be the best way to make some money in the short run...but not until we get a little rally. For those that want to just trade calls or buy the stock, you would want to sit back and wait for this correction to complete. There is a support area at 1040 on the S&P 500 where we could get a little bounce. In the short run, we'll look to see if the 1000 area holds as support (I don't expect the 1040 area will hold). Beyond that, we could ultimately end up testing the 950 level. This could get ugly.

IS THE UPTREND ENDING?

This is the question that many traders are asking themselves after the market sold off over the last two days. Last week I recommended that you start building your cash. This should have protected you from the sell off over the last two days. We like sell offs because they can create new buying opportunities. Before any new buying takes place, we want to make sure we are done correcting. There is a possibility that we have completed a bullish ABC pattern and the market is going to rally back up. All we have right now is a 44.7% Fibonacci retracement acting as support. There would definitely need to be some confirmation for that outlook. There is some evidence that the overall uptrend could be in jeopardy. Stocks are having trouble rallying...even when their earnings are positive. I gave the examples of AA, IBM, INTC, and GS last week. Earnings season has about another 10 days. After that, it is hard to see what news will push these stocks higher...especially if the earnings didn't do it. There are some other clues that we need to pay attention to. First, look at the DOW Transportation index. This is often a leading indicator of the market. Notice that it has already dropped below its 50 day moving average. This is the second time it has done this in the last month. The VIX rallied up to its 50 day MA today. Remember the inverse relationship the VIX has with the market. If it breaks above its 50 day MA, we could be in for a larger correction. If the 50 day MA holds as resistance, we could be in for another rally. The dollar has also started to strengthen which could put pressure on the commodity stocks. The best advice for tomorrow would be to sit on the sidelines and wait to see how the market reacts. If we start to rally, you could look at stocks that are sitting at their 50 day MA. Many financial stocks are in this position like GS, JPM, AXP, and WFC. I also like some of the gaming stocks like BYD, MGM, and WYNN. Again...that is if the market begins to rally. I like the reward to risk on those stocks...particularly if a stop is placed below the 50 day MA. APC and APA have made nice pullbacks and could be good potential plays if the dollar continues its downtrend. AAPL could be nearing another buy postion. AMZN has made a sweet move, but I wouldn't chase it right here. It will give you another chance if you are patient.

CONTINUED WEAKNESS

I think that not only describes the market, but also my current condition after being hit with the flu this week. I won't be writing much tonight. I just wanted to get something posted because I do see some weakness in this latest sell off. It started with the Alcoa, Intel, and Goldman Sachs earnings. They all had huge quarters, but the stocks ended up selling off after they gapped up. The divergences are showing up again on the RSI, MACD, and CCI. There was a big reversal today as we were up about 80 points before we sold off in the last two hours to close down 92...that's a 172 point reversal! The volume was higher than normal which causes me to think there will be more to come tomorrow. If you want to hang on to some hope, we are sitting at the support of the 10 day MA and the previous high (9/23/09 high). This could act as support. You should probably abandon that hope (at least temporarily) if we open the day any lower than today's close. I'm not saying to go short the market. For now, we will treat this like the other pull backs...as another buying opportunity when the pull back is complete. That is unless we start to see signals of the uptrend breaking down. It is probably best to go to cash and wait for the correction to complete. I'm not saying to just bail on all current positions...I could be wrong and we could snap back tomorrow...but you should at least make sure you have defined your stops.

SUCCESS STORY

Jerry,

Just wanted to give you an update of where I am at. Have been very successful in a number of positions, as shown below

KOL - stock is up 25% since I took position, still showing strong trend
HOG - bought Jan 28C and sold about 5 days later when they more than doubled
NSC - went long when it was at about $43, now nearly $50
SOHU - went long when the latest correction hit the .786 retracement and the trendline. Has taken off from there - very strong move today, up over $5
LVS, SWKS, CHK, BAC - have long positions, all are promising

Appreciate your coaching and support. Love the Blog - keep it going

Frank C.

SICK

I've been out the last three days with the flu. I won't have any blog postings until I feel better...hopefully that is soon.

SUCCESS STORY

Hi Jerry:

I am currently trading LULU. I found this stock on the Orbis Advisors website. I went to "Muscle Stocks" and looked at the "spring loaded" section. When I did, I found many stocks forming bullish ABC patterns.

On October 2 I purchased the Dec 25 calls at the .618 fibonacci retracement level. There was confluence with the fibonacci extensions as well.

This is an upwards trending stock, above the 50 day moving average. I am currently up 100% on the calls.

--
Cheers,

Roland

ARE WE DONE?

I've been a bit concerned with the price action of some of the stocks that have reported earnings. AA gapped up then promptly sold off. INTC did the same. GS has gapped down...up...then down again...all in the last three trading sessions. This has caused me to take some profits off the table. The trend is still up though. I'm not predicting a reversal here. In fact, I'm keeping a close eye out for some new buying opportunities. Technology has sold off lately which could create some new trades. I've decided to wait until after AAPL reports on Monday. If AAPL follows the tech trend, it should sell off after the report comes out. If it does, I will look for some opportunities. I don't have anything I want to post tonight, but I will get some patterns to you when I see something I like.

SUCCESS STORY

Jerry,

I'm a new student in the Option Academy - attending my 3rd session today at 10:00.

I started monitoring the Virtual Investing Club about 6 months ago, and have made a few trades along the way. I was so impressed with the performance of the trades (that I was monitoring) that I had to sign up for the mentoring program.

I purchased 2 CLF OCT 30 calls on Aug 18 for $1.59 ($159.00 each) and sold yesterday at 7.98 ($798.00 each) for $1,252.06 profit!!!!

Needless to say, I'm very happy with that trade and look forward to continued success!!

mike s.

10,000

I'm not talking about the DOW...I'm talking about how much money you should have made today. We broke through all the resistance (and support) levels we talked about yesterday. DIA, SPY, QQQQ, and Oil all broke above resistance. The VIX and the dollar broke their support (although the VIX rallied back up the the support/resistance area at the end of the day...I'll address this later). Most sectors were up which means that most (if not all) of the stock picks over the last few days have gone up. Like I said the other day, I loaded up ahead of the move in anticipation of a breakout. Because I was aggressive, I was able to participate in the gap up this morning. Financials did lead the way...as I mentioned yesterday...and they should continue to move with C, GS, and BAC reporting over the next few days. The market should continue to move up tomorrow with GS and C reporting in the morning and GOOG, IBM, and AMD reporting after the bell. If GS and/or C don't shine, the market may pull back a bit as investors take some profits. If this happens, look at it as a possible buying opportunity or a second chance to get into the trend. If you haven't gotten into anything by tomorrow (if we go higher tomorrow), just continue to sit on the sidelines. There comes a point where you begin to chase the trend and it sets up bad reward to risk trades. You can buy some breakouts, but stick mostly to the trade management technique I taught you (or will teach you) in the course. Most traders buy breakouts when they are late to the trade or they just don't know how to recognize and trade ABC patterns...or they are waiting for additional confirmation which is what we have done sometimes in the past. The VIX spiked up a bit at the end of the day (back up to the support/resistance area at about 23). I think most of that was due to a rush to buy protective puts on the breakout. It shows that the institutional investors are still a bit worried as to how far we can keep going up...but it doesn't signal any panic. The protective puts are relatively cheap right now so it only makes sense to buy that protection. It also puts my theory (October 2nd posting) on hold for another month as the institutional investors were able to buy cheap put protection for another month...we'll see what happens in November.

Some students have found nice patterns in the past. If you find a pattern that fits the trend criteria that I taught you in the course, e-mail it to me and I'll see if I can post it on the blog. The rule is that it must fit the course criteria and I must like it. I don't want to post something that I don't have confidence in...I can't...I have a responsibility to the Followers. However...if I do post the pattern, I will give you full credit for the pick...well almost full credit...just first name and last initial. You can e-mail me those patterns at jerry@myoptionmagic.com. Alester R. found the RIMM pattern a month ago that made about a $10 move when it broke out. That was before the drop that followed...but we were out of most of the trade by then. By the way Alester, I'd like your success story from that trade...that is if you traded it. I hope you did.

IT'S ALL ABOUT...FINANCIALS?

Everyone is looking at the technology sector tomorrow because of Intel's earnings report. Don't get me wrong...Intel had a great quarter and the market should gap up tomorrow because of it...but the main focus this week is on the financials. JPM reports tomorrow morning, Citi and Goldman Sachs on Thursday, and BAC on Friday. We should gap up tomorrow because of Intel. If JPM disappoints, we could sell of a bit after that. If JPM beats estimates, we will keep going higher. We are sitting at so many critical resistance levels. Oil is forming a double top (make that a triple top), the XLF has a double top, the SPY and DIA have double tops, the dollar has a double bottom, and the VIX has a triple bottom (both are inverse indicators). I've been a bit more aggressive and have gotten in ahead of the potential breakout. For those that are being a bit more cautious, wait for the breakout. If the DOW is up more than 100 points tomorrow, we will have broken above the resistance. AAPL is probably going higher. I got into AAPL ahead of the Intel report and it will probably gap up tomorrow. Other tech stocks that could move include AMZN, GOOG (which reports on Thursday), BIDU, SMH, QQQQ, AMD, PMCS, BRCM, ALTR, CREE, and MRVL. GS is an interesting pattern. It gapped down $4 today, but formed a perfect "doji" candlestick pattern. Also, the 60 minute chart shows a possible bullish ABC pattern. The stock has rallied back up to $189 in after hours trading. I was stopped out on the gap down, but I might jump back in if we open near that $189 area. C is starting to breakout of a triangle pattern. I also like JPM, BAC, AXP, WFC, USB, and PNC. If all the analysis and stock recommendations are making your head spin, just trade the DIA, SPY, or QQQQ. In other words, just trade the whole market. That is what I end up doing most of the time. Many stocks will move if we break out right here. If you have favorite stocks, check them for possible trading opportunities. Make sure they have strong trends based on the trend analysis I taught you in the course. If we somehow don't breakout tomorrow, I will try to post something before the market closes.

KEY AREAS OF RESISTANCE...AND SUPPORT

Today we retested the 1080 area on the S&P 500. We need to pay attention to what happens next. If we blow through this resistance, like we have done to the last 3 or 4 resistance areas, the trend should continue to 1100. Watch the price of oil and the value of the U.S. dollar. Oil is at a triple top around $74 a barrel. Triple tops almost always break out to new highs. If it does, we could see a run to $90 a barrel. The U.S. dollar is sliding, but it has managed to form a double bottom. If this double bottom holds...and it begins to rally, you will see oil retreat to levels below $74. Since oil and the dollar have an inverted relationship right now, we could get breakouts on both. Oil would continue the uptrend and the dollar would continue the downtrend. Be ready with your trades. The futures market should give you a clue before the market opens. I'm loaded up because I'm confident that Oil is going higher. If you want to be conservative...and I wouldn't blame you based on the last time I got real confident, you can wait for the breakout. There will still be money to be made when it breaks out. Trade your strongest energy stocks. APA, APC, EOG, CHK, NGS, ERX or XLE (ETF's), NOV, DVN, KWK, HAL, DO, and FSLR. I'll even look at AAPL for one more move up. I know...they aren't an "energy stock", but they do have a lot of energy in their trend. That's got to count for something.

SUCCESS STORY

Let’s see! Before coffee, before that first phone call, before pretty much doing anything and sometimes with one eye open we make our way to the laptop, power switch on, mouse navigates to the myoptionmagic blog icon, “click”, what does “the magic man” write for guidance today? The day could not possibly be under way without the green and white. Weekends included, sponge it up!!! I believe you call it “due diligence.”

Jerry, last February my son Greg and I attended your options webinar for beginners. Neither one of us had a clue. We were definitely stock/options challenged. Following your instructions and excellent outline as to how we should proceed after the classes has worked very well. In particular, your guidance on management of your portfolio in the last class was crucial. At the time, you said, “I believe this is the most important class of the course.” We still have our original bank or start up money. In addition we now enjoy playing with the houses money and have transferred 12k to our personal checking and savings. We are just beginning to trade larger positions but remain diligent to the plan you taught us to develop and follow as we learn and grow. Our success story is a simple one Jerry. Its not about any single trade or big score, but rather about all of them.

Fortunately, my wife Cheryl, son Gregory, daughter Meghan and myself have been able to stay in our home of 25+ years . All the while, the future continues to look better and better because of the trading education we received from you. Your blog is at the center of our daily trading and continued education. We are looking forward to more of your webinar classes in the near future. Trading has been a perfect fit for me after surviving catastrophic injuries in a motor vehicle accident. We were down to one weekly paycheck and additional medical expenses.

So Jerry, because of this blog and the webinar classes, you have successfully kept this family from being homeless. Quiet a terrifying feeling I assure you!!!

Please! Give Yourself A Huge “High Five!” and Please Continue This Blog

Thank You From All Of Us!!!

Dave G & Greg G

P.S. Market Trend Signal.com recommendation was icing on the cake. It is awesome also.

P.S.S Hey folks. Let’s try to help Jerry get a more accurate accounting of how many people are actually using his blog. I find it very hard to believe that there are only 71 followers. Honestly, try putting a dollar figure on what Jerry provides all of us for free. I tried an info site one time with a monthly cost that was 3 figures and it did not match up to the returns I generate from Jerry’s advice and guidance. Not even close.

SUCCESS STORIES

Thank you for sending in success stories. I don't request success stories as a way to satisfy my ego as a coach. I post these stories so that you can get recognized for your accomplishments and hard work with trading this system. Trading isn't easy...as many of you know, but that is why it is rewarding when your hard work pays off. I love to see when students catch the vision of how much they can make with this knowledge. These stories can also motivate those who have been procrastinating their success due to many types of excuses...some legitimate, and some not so legitimate. They can also help you deal with the fear of trading for the first time. It's nice to know that others are doing it and making money. Competition always seems to bring out top performances. I would like to try to reward the best success stories each month. I haven't yet thought this through...nor the legalities of even doing something like that. I would like to get some feedback from you guys as to whether or not you would like to see and/or participate in such a competition. If you have comments, questions, or suggestions about things you would like to see on the blog...or with any troubles you might be having with your trading, please e-mail me at jerry@myoptionmagic.com.

Look at AAPL and GS. Both pulled back today which could give you a second chance entry. For the Advanced Options class, I like the DELL November 15, 16 strike Bull Call Spread.

SUCCESS STORY

Jerry

Yamana Gold (AUY)

Sept. 28/09 Purchased 20 Nov 10 Calls @ $0.95

Oct. 7/09 Sold 10 @ $ 1.75

Oct 8/09 Sold the remaining 10 @ $2.45

Total Net profit (after commissions) $2239.88 (approx. 116 %) in 11 Days.

Thank-you for the great insight and information you provide in your Blog and teachings.

Rob

EARNINGS SEASON IS HERE

Alcoa officially kicked off earnings season. Earnings are being reported all the time, but earnings season is when most companies report their earnings. The big earnings months are January, April, July, and October. It usually starts in the second week of these months and lasts about 4 weeks. Alcoa is the company that officially begins the earnings season. They had a great earnings report which should move the market higher tomorrow. The market pulled back a bit today which was expected given the move over the last two days and the anticipation of the Alcoa earnings. This pull back also gave some a second chance to get into positions. This is going to be an interesting earnings season. Companies won't be able to get by with losing less than they did the quarter before or beating on the top line. The market wants to see real growth. So far it seems that the market expects earnings to be okay...but I think there could be some volatility. If you've been sitting on the sidelines, it's time to put some money to work in the market. I still think the bulk should be in cash (cash refers to money that is out of the market and sitting in your account), but some money needs to be put to work...or you'll miss an opportunity. I won't list the picks from a few days ago, but most of them are still in good buy positions. Here are a few more: FSLR, AKAM, BJ, NANO, and PCX. I expect success stories to come in by this weekend. Please take the time to send those to me.

TODAY WAS ALL ABOUT THE DOLLAR

We had a strong move in commodities today due to the continued weakness of the dollar. We did get confirmation for a lot of the patterns. Many stocks gapped up at the open. One strategy, if you are getting in a little late, would be to buy a small position at first...one or two contracts. If we pull back a little in the next few days, you could look to increase the position. If it just takes off from here, you at least have a partial position in order to take advantage of the move. Those natural gas stocks look great. APA and APC made very strong moves today. They will probably move higher...at least until the market sells off again, or if the dollar starts to go back up. The continued weakness in the dollar has caused oil and gold to continue their upward move. Although I think that gold could go higher, I wouldn't get too greedy. We saw how fast it sold off after we got that big move a few weeks ago. The market should continue to move up to at least the 1080 area on the S&P within the next few days. Keep an eye on the movement of the dollar. If it keeps dropping, Energy and Commodity stocks should continue to rise. If the dollar starts to go up, we might want to take profits on these trades and move back to the sidelines (cash). Send in those success stories if you had any nice trades over the last few days.

WAIT FOR MORE CONFIRMATION

The move up today was nice, but be careful about jumping in right here. Many stocks I'm watching rallied right to a resistance level...whether it was a 10 day moving average or a previous area of support now acting as resistance. Look at CHK and JRCC. Both rallied right to their 10 day MA, but did not close above it. BIDU closed right at a strong support/resistance area around $383. AAPL close right at the resistance trend line of its last correction. The S&P 500 rallied up to its support/resistance area of 1040. If you want to take a chance, then you could get in and hope it eventually breaks out above these resistance areas. I'm going to be more cautious given the negative news that has been coming out lately. I'm willing to wait for better confirmation in order to increase my trade probability. After the recent drop, I want stocks (and the market) to start breaking above resistance levels. We are at a resistance level, but we haven't yet broken above it. All the stocks I mentioned last week still look pretty good. Especially APA. This stock broke above the 8/24 high, its 10 day MA, and the resistance line of this last correction...all in one day. If you made you watchlists over the weekend, you had the chance to set up your trades tonight and wait for confirmation tomorrow. You could even have set up contingent orders for your trades if you won't be able to place them during market hours (for those new to the course, I'll be teaching that technique later on). I still think it's smart to keep a large cash position and only trade strong trending stocks that are giving good confirmation. Add financial stocks to the watchlist. Many of them moved back above their 50 day MA with today's move. GS is the leader of the group. I wouldn't chase today's move...but if it breaks out to a new high, I would be all over it. Also look at LVS, MGM, and WYNN. FCX, MDR, NOV, DVN, EOG, HAL, ATPG, BEXP, SOHU, WDC, JNY, ANN, but no IBM! I'm boycotting that pattern. Remember, many of these patterns need a bit more confirmation. We could drop 200 points tomorrow and you would be glad you were waiting for confirmation.

TRYING TO FIND SUPPORT

The markets rebounded almost as soon as they hit the 50 day moving average. The S&P 500 and DOW almost managed to close higher after selling off at the market open. Bad new continues to come out and the unemployment rate continues to rise. Keep an eye on how the markets continue to react to that 50 day moving average. Today's price action on the SPY and DIA was bullish. When a stock (or the market) gaps down but ends up closing higher for the day, it is considered bullish. The fact that it had this type of price action right at its 50 day moving average makes it worth watching. The trend of the markets is still considered up. We are still above the 50 day moving average and the 50 day moving average continues to trend upward...although it is starting to flatten out a bit. I haven't put on any new trades because I want to see what we do on Monday or even Tuesday of next week. Watch the price action closely...and not so much the news or commentary. More specifically...don't focus on the news, but rather how the market is responding to the news. The news itself is almost irrelevant. I've seen markets go up on bad news and down on good news. Remember...the price is always right.

Although we could move lower over the next few days or weeks, I'm not so sure there will be huge moves down or a big increase in volatility. Here's my theory...and its just a theory. Many institutional investors were late to this latest uptrend (March to September). They decided to get in late because they obviously believed that the markets should continue to move up in the long run. They also protected these positions with protective puts along the way...mostly because they were cheap due to the lack of volatility in the options and the market. It made sense to buy this protection because the trend had made historic moves up and the cost of the protection was so cheap. Because these institutional investors have this protection, they won't be as likely to panic if these stocks start to sell off. Sell offs in the market accelerate when the fear level rises as the traders try to get out of their positions. It will take longer for an institutional trader (trying to sell millions of shares) to get out than an individual trader. Because of this, institutional traders often accept lower prices because they have to...they've got to get out. With a protective put on their positions, the institutional traders don't have to sell out at the lower prices...or at least they don't have to rush to get out. For this reason, I think that the pull back (if it even continues to happen) will be more controlled. However, here is my theory. Most of these institutional traders have protected themselves with current month put options. This makes sense since current month options are much cheaper and it allows them to rethink each month whether or not they need that continued protection. In other words, if they feel confident about the uptrend continuing, they might choose not to pay the insurance (protective put) for the next month. So I think many of these institutional traders have October protective put options in place. However...here's the problem. October options expire in two weeks (October 16th). With this latest move down in the market, the volatility has risen, making put options more expensive. These institutional traders should be okay until October 16th, but what happens after that? They lose their current protection and the cost of future protection has already gone up...maybe even up so far that they won't be able to afford the protection. When this happens they will have two choices. Either pay higher prices for the protection (which would definitely damage profitability), or start selling heavily if the prices start to drop. For this reason, I can see huge volatility developing in the markets after (or around) October 16th...that is unless the market rallies back up which would allow those institutional traders to more affordably buy the November protective puts. Hope this all made sense. This is just a theory...a Friday afternoon ramble...we'll see how it all plays out.

Keep an eye on CHK, APA, JRCC, BIDU, AAPL...and many others. They all show possible bullish ABC patterns and they all are sitting on their 50 day moving averages (and other support levels as well). Now I did say to watch them. They would need confirmation before placing a trade. You might even want overall market confirmation as well. Wait for them to start exhibiting characteristics of an uptrend...like breaking above resistance levels. Those resistance levels could be trend lines or moving averages (10 or 20 day MA). I am very neutral on the market right now so I want to be clear about the need for confirmation. Put these stocks into a watchlist...and any others you might see with similar patterns. Have a good weekend.

WHAT A DIFFERENCE 30 MINUTES MAKES

I made that last posting about 20 to 30 minutes before the market closed. We ended up down 203 points on the DOW and 27 points on the S&P 500. The VIX spiked to over 28! We broke through some pretty significant support levels. We haven't yet broke the 50 day moving average, but that is jeopardy with bad news coming out and earnings season starting in just over a week. The ISM manufacturing index came out with an actual reading of 52.6. The estimate was 54. Last period was 52.9. The safest place is in cash right now. For those that want to trade the move down, use small amounts of capital and don't trade the recent market leaders. Put options on AAPL or GS would be much riskier than put options on the other stocks in their sectors. Don't lose a lot of money chasing this correction (which could possibly last a few weeks). Keep you cash so that when things start to move up again, you will be able to jump back in and make the easier money. If I see any great trading opportunities...bullish or bearish...I will post them on the blog. For now, I'm waiting to see how the market will react tomorrow. Nonfarm Payrolls and Unemployment due out at 8:30 Eastern Time. It could be ugly. Keep in mind that we have wanted a pull back for several weeks. The divergences that I pointed out a while back warned of this type of sell off. We had gotten pretty far away from the 50 day moving average. Many stocks have pulled back nicely and still have nice strong uptrends...at least for now. By the way...we are done waiting on IBM. I just wanted to make that official in case any of you were wondering.

GOING TO CASH

I'll have another update tonight. I wanted to get this in before the market closed. Unless we get a huge rally in this last half hour, we will close down about 150 points (on the DOW). The VIX has spiked to almost 28. Fear is entering into the market. This doesn't necessarily mean that the markets are going to crash. In fact, I think the uptrend is still strong enough that it should continue. The problem is that I don't see it continuing upward over the next week...or two. So...I would rather be in cash until I see a clearer direction. I might consider some put options on the market, but probably not today. I don't like to buy puts when the market has already made a big move down. I'd rather wait for a small rally and try to play the next move down...if there is one. We'll keep an eye on things over the next few days.

END OF Q3

Here we are at the end of Q3 and what a wacky day it was! We sold off early, then it reversed and looked as though we were going to explode to the upside. I was getting ready to jump on a number of trades when we drifted back down and closed a bit lower for the day. We were down 131 points on the DOW within the first 30 minutes. Then up 35 points by the afternoon. Then down 30 at the close. That...my friends...is a roller coaster! That type of movement in price reflects indecision and some nervousness as to what will happen next. Now I'm not big on following government reports, but the ISM number comes out tomorrow. The ISM number reflects the health of the manufacturing sector. A number above 50 would show that manufacturing is expanding. The expectation is around 54. We also have employment numbers out on Friday, but this seems to be the big focus. The market is sitting on some key near term support levels. I think the direction we move tomorrow is the direction we will move for the next several days. If it is up, I'm already to go...and you should be too with all those picks I gave you. If we break lower, I'll probably go to cash...and maybe buy a put or two on the SPY or DIA, but not any big position...yet. I will give IBM a stay of execution for one more day. They dropped below their 50 day MA during the day, but managed to move up 80 cents going into the close. IBM is 40 cents from getting back above $120...make me proud and get back on track! Gold continued its short term strength. Many of those stocks reached one of my confirmation signals.