1131 RESISTANCE

Sorry for lack of blog posting this week. I am trying to finish up the trade management recording and I have to pull that time from somewhere. I probably won't have any other blog posting this week unless something significant happens. Today's posting should give you enough information on the current conditions. We are nearing the 1131 resistance area again. Much like the 1040 support area on the downside, this 1131 area has acted as a pretty strong resistance. The SPY gave a pretty strong bearish signal last Thursday, but it has managed to move up above its 200 day MA since then. There wasn't a lot of volume behind last Thursdays move which might have been the reason why the market didn't sell off. Since that day, the market has had a few more bearish candlestick days and is starting to show some bearish divergence. It is probably due for a decent pull back, but I think the major sell off below 1040 is probably off the table for now. If we get a big sell off here at this resistance area, I might consider a possible move back down to 1040. I would need to see a decent spike in the VIX though. We could just have a normal pull back to relieve the overbought conditions. If we do have a modest pull back, look for the markets to break above 1131 and head to the 1160 to 1180 area. This could create some high probability bullish trades. Keep an eye on NFLX and AKAM. They need to pull back a bit more, but they could be good bullish candidates. There is a great reward to risk play on the SPY right now. Buy your put options and place a stop above the 1131 area (actually above 113.30 on the SPY). If the market moves down tomorrow or Friday, you will make a nice profit. If it breaks above 113.30, you will have a small loss...but you could then immediately buy calls on the SPY with the expectation that the market will move up to that 1160 to 1180 area. Use November options to give yourself plenty of time for the move. For a counter trend trade, I like puts on GMCR...but only enter if the stock closes below today's (Wednesday) low within the next day or two. If we do hold this resistance and pull back a bit, I think that just about any financial stock would give you a good put option trade. My favorite being AXP of course....but I also like the bearish trends on C, BAC, COF, WFC, USB, and PNC. You could also try calls on the FAZ. There is still very low volume in the market right now. ANY big volume move will likely have a significant follow through. If we have a big down day on higher than normal volume, look for the market to move down to 1040. If we breakout above 1131 on higher volume, immediately look to buy calls. I will usually use the volume on the SPY, DIA, and QQQQ to determine the volume of the market...however, I will also look at the volume on the Dow index. The recent breakout in gold signals that there is still a lot of uncertainty in the markets. Gold should continue higher if that breakout holds.