TOMORROW'S TRADE

The market could try to stage a rally tomorrow. Many stocks rallied a bit at the end of the day. If the markets trade up tomorrow, look to buy puts on the SPY, DIA, and QQQQ. Any rally would create a great opportunity to buy puts. Set a stop above last Friday's high. If the market moves to a new high, we would want to sell the puts and go back to buying calls. If the market does try to rally, watch the movement throughout the day if you can. Look to see if the rallies are met with more selling. This could be an indication that the institutional investors are trying to dump stocks on each rally. That would be very bearish and would add to the belief that the market could go lower. If the market can reverse the selling of the last few days (like it did a few weeks ago), we'll need to be prepared to flip flop back to bullish trades. Keep a watchlist of good bullish stocks in case this happens. If you aren't already in USO or the VIX, wait to see if they pull back a bit before getting in. The two day move up on the USO was massive. It is probably due for a bit of a pull back. Don't wait for it to pull back too much or you might miss another possible spike up.

Update...as I am about to go to bed, I noticed that the S&P 500 futures are down about 10 points. If this holds into the open tomorrow, the Dow could quickly be down 100 points. Oil is also over $100 at last check. If the market opens that low tomorrow, see if it bounces up a bit after the gap down. If it does, use the bounce to buy the puts. Don't chase a sell off here. It is okay to buy a few contracts if you feel the market will drop quickly, but be patient for a rally that will set up the next move down. These rallies can sometimes initially look impulsive to the upside, but they often rollover and lead to big moves down. These big downward trades are what we are trying to catch.