THE MARKET IS OVERBOUGHT

The market is overbought and could be ready for another correction. I mentioned this morning that a close back below 1131 on the S&P 500 would be very bearish. Some of you have been beat up a bit as this market has fluctuated back and forth. This is a difficult market to trade. There have been many conflicting signals. I can usually get a very good feel of where the market is heading next, but these last few months have been very difficult. This happens from time to time. I've mentioned the late summer of 2008 as the last time the market traded this difficult. The good news is that it doesn't happen very often. The bad news is that you can get wiped out in these types of markets if you don't have a good money management plan. This market has driven at least two major hedge fund managers to call it quits and retire. Keep in mind that they are very wealthy and were probably looking for an excuse to get out...but it is an illustration of how difficult this market has been to read. I've had a few emails from students that were classic "Monday morning quarterbacking". It is key to remember that BOTH the bulls and the bears have been beat up in this market. If you have been beat up, it is perfectly fine (and probably very necessary) that you take a few days off and allow yourself to get control of your emotions. Don't try to overcome a draw down in a short period of time. You will often make major mistakes that can make the draw down worse. For those that need some nice patterns to trade, look at IBM. If IBM can close back below today's (Wednesday's) low...around $131.42..., it should start to make its way back down to $122. That would be a nice put option trade. You could place the stop above 132.50. Make sure you wait for the confirmation on these patterns. The move down on AKAM was very bearish today. This would be a counter trend trade. You could buy the put on AKAM and place a stop above the most recent high. The initial target would be around $46 which was the previous resistance area. A bigger downside target would be $36.75. I really like this for a bearish trade if you are willing to take the risk. Make sure you are willing to take the risk. MA has a similar range like IBM. Wait for MA to close back below about $217 and it should make its way back down to around $193.