CONSOLIDATION

The market has been consolidating for the last few days. It is still difficult to determine when the next move down will be. I see possibilities of a rally over the next few days, but I also see a possibility for another 300 point drop. If you look at an intra day chart (15 minute chart) of all three major averages, you see a possible bearish ABC pattern forming. What I did today...and what I will probably do tomorrow...is to use a contingent order for a put option trade on the SPY. I'm looking to place my contingent order around the $106 area of the SPY. If the market move below this point, it should trigger my put option trade...with the expectation that we will be on our way down in the near term. If the market continues to rally tomorrow, I will look to raise this contingent order until the market decides to drop again. I do not see many buyers on these rallies which gives me greater and greater confidence that we are moving lower. Having said that, the major averages still look like they could rally up a bit. We are getting further and further away from the 50 day MA. When this happens, you expect the market to come back to it...even if it is just a little bit. The safest place to be right now would probably be in cash. The market is currently (as of today) in a kind of "no man's land". This is not a good area for new bullish trades and it is not a great area for new bearish trades. If you already have trades set up, keep managing them. If you are looking for new trading opportunities, be patient. Since I don't see many great position trades out there (trades designed to work over two weeks to two months), I moved into the intra day charts to look for any swing trade opportunities (trades designed to work over 1 to 5 days). This potential trade in the SPY is a swing trade. I'm expecting about a 30 point drop in the SPY (down to that 1040 area) if that confirmation point is hit on my contingent order. This move would be expected over the next 5 days if that confirmation point is hit. This doesn't mean I know what is going to happen next...I don't...but I have a plan and I like the reward to risk. There was some Elliott Wave analysis that went into some of this trading decision. I went over a lot of the details in my Elliott Wave class tonight. Elliott Wave analysis can provide a great context to the market. It can sometimes make you feel like you can predict the future...even though you still can't. There are some Elliott Wave patterns that can set up some very high probability trades. We'll see how well I do over the next few days. If you are interested in that course...the Elliott Wave course (Course 3)...please let me know by e-mailing me at jerry@myoptionmagic.com.