FLIP FLOPPER

Yes, I am. As I've always said in my classes...flip flopping in politics is deadly, but flip flopping in the market is absolutely necessary. You've got to be willing to change an outlook based on the clues that are coming in. Our job is not to predict the future, but to analyze the probabilities. In other words...I need to be careful not to trade according to what I HOPE to happen, but rather what is ACTUALLY happening. Today we had a huge move up. We broke back above the 50 day MA and the 10 day MA on the S&P 500. Since the trend of the market is still considered up, this move back above these moving averages indicates a break back above two resistance areas...which is a characteristic of an uptrend. I will now state my dilemma and my solution. The dilemma is that I still don't trust this rally. The volume was pretty light despite the big point move. If the buyers were fully behind the move, the volume numbers would have been considerably higher...or at least higher than the last few days. Although I don't trust the rally, I can't completely reject the other clear bullish signals that the market gave today. In other words, I've got to be careful that I'm not trying to project a "hope" or "wish" on the market. Again, you can see why even the most brilliant traders are a bit confused right now (keep in mind...with that comment...that I wasn't necessarily including myself with the "brilliant" traders). Here is my solution to my dilemma. A few days ago, I bought some put options on the market. I didn't buy them at the market low. I waited until the market rallied up a bit (possible bearish ABC pattern) before I bought them. I also decided not to use a stop loss on those puts. Because I bought them when I did, I still have a chance that they could go up in value if this rally sputters and we continue lower. With today's break back above the 50 and 10 day moving averages, the current trend signals are saying that I need to be buying calls or buying the stock. What I did today (near the close) was to buy some calls on stocks that didn't break below their 50 day MA on this last pullback. Stocks like AAPL, APA and APC (although that rally in the dollar sure scares me), and AMZN. What I am doing is using those put options (that I bought earlier) as a hedge. If we rally to a new high in the market, I should make money on the calls...more than enough to offset the loss on the puts. If this is a suckers rally and we drop much lower, I will lose money on the calls...but the money I make on the puts will just about get me to breakeven. On the surface, this would look like I can only make money if the market rallies from here. This is not necessarily true. If we break back below the 50 day MA for a third time, I will probably start buying a lot more puts...thus increasing the leverage to the downside. This would allow me to be profitable if the downward move does continue...which it should at that point based on what would be a triple break of the 50 day MA support. If all this seems confusing, just stay in cash right now. This is a dangerous market for big bet trades. Sit out a while until things settle down into a clearer trend. When you take on multiple positions like I did, you need to have a clear game plan and an understanding of just what you are going to do if the market breaks one way or the other. I'm not worried about what the market will do in the next week or so...as long as it moves one way or the other. I can only get crushed if we stay in this range and keep moving sideways...which is always a possibility. I do have a plan for that possibility, but you will need to take course 2 to learn those adjustments. I don't think this is a market that should be traded by beginners...at least not right now. Just about every move needs to be hedged. If you don't know how to hedge a move, your best bet is to be patient and sit out for a bit. This market has some of the best technical analysts shaking their heads in confusion.