EARNINGS SEASON WINDING DOWN

Sorry for the lack of posts last week. Not much new was happening in the markets and I needed to take a break from the blog. This week could be a critical week. Earnings season is winding down and there are a lot of economic reports coming out in the next few weeks. With no big earnings announcements to counter the economic news, the markets could start to retreat. This week I think we will either get a move above the 1131 area, or a strong sell off which could trigger the bearish scenario that I've presented over the last few months. When you follow the blog, please make sure you are aware of my longer term outlook verses the shorter term expectation. For the last few months, I've said that I think the market will continue to trend down through the end of the year. This doesn't mean that it will go straight down for 5-6 months. The market always "stair steps" up and down. Right now I am looking at this latest move up as a rally within the larger downtrend. As we moved above the 1040 area on July 7th, it became apparent that we were in for a market rally. I expected a shorter rally, but it now looks like a very deep retracement of the downtrend. Although I'm expecting the downtrend to continue, I'm also preparing myself for a possible market move above 1131. If this happens, I will be forced to rethink my bearish outlook. I try to analyze the markets based on what the charts tell me. I don't really care if the markets go up or down as long as they move. I can make money in a choppy market, but the money comes a lot slower. Some have felt that I have ignored some of the positive signals in the market over the last month and have "dug in" on my bearish outlook...perhaps because I have taken such a strong stance in predicting a big move down. This is simply not true. I always consider the news...good or bad, but I analyze it based on the chart patterns. I'm not saying that I operate without a market bias, but I am saying that a market bias won't prevent me from trying to make money in the market. This is why I'm prepared to turn bullish if the charts tell me to turn bullish. What I am looking for this week is either a move above that 1131 area, or a big sell off in the market which could trigger the next big move down. Keep an eye on the VIX. If we sell off more than 150 points on the Dow and there is a significant spike up in the VIX, we could be in for a very large sell off that could finally bring the S&P 500 down to that 950 area I've been talking about. For anyone that trades these possible moves, use in-the-money options with a delta of around .70. The traders that are in trouble with their previous trades are the ones that bought out-of-the-money options and failed to follow my advice to stop out when the market moved above 1040 early in July. For those that used in-the-money options, they could get bailed out if the market starts to move down in the next week or so. They also had an opportunity to roll out their options to September or October when the market moved down on July 16th and 21st. In-the-money options are just a safer play in these uncertain markets. Stop losses are also important. You don't always have to use actual stop losses (I don't always use them), but you still need to know where you will cut your losses when a trade goes against you. Those that want to be more aggressive can enter bearish here and place a stop above 1131 on the S&P 500. If you have bearish trades on individual stocks, look to stop out if the market goes above 1131. I recommend that most traders wait until we get some sort of confirmation...up or down...before getting in. I know many of you are anxious to overcome some drawdowns, but be a bit more patient and it should pay off for you. Watch how the market closes tomorrow. The buyers have been coming in at the end of the day for the last 4 trading days. If we have a down day that can close at the lows of the day, look out.