TROUBLE IN THE MIDDLE EAST

When a a market enters a 5th wave in an Elliott Wave count, we start to look for a catalyst that will pull the market into its correction. The catalyst is usually unique and is unlikely to be closely related to the previous catalyst. The catalyst last April was the problems in Greece that spilled over into Portugal, Spain, and Italy. It looks like the catalyst this time around could be the new trouble in the Middle East. I'm not saying that the sell off today is the start of a larger correction. I saw what the market did three weeks ago when I felt the correction was underway. I am saying that this might be it. We need to be prepared and have a plan to trade any correction that comes our way. If you followed my advice over the last few weeks on trading the VIX, you hedged yourself nicely today when it spiked up over $4. This allowed you to offset some losses as you were stopped out of some of your bullish trades. We will watch the market movement closely tomorrow...much like we did on January 31st. If we wipe out this sell off within the next few days, my advice would be to buy calls on all your strong bullish stocks and ride the trend back up. If the rally stalls or if the breadth is small, it could mean that another move down is on the horizon. If we rally up a bit tomorrow, I will probably look to buy puts on the SPY, DIA, and QQQQ...with a stop above today's high. I'm also looking at calls on the TLT. The TLT is an ETF for the Treasury Bonds. Many traders are selling out of stocks and putting the money back into Treasury Bonds. I also like calls on USO. Although oil could pull back a bit after the big move up today, I think it should continue even higher. As long as there is uncertainty spreading throughout the Middle East, oil will likely continue to rise...especially if Saudi Arabia or Iran get involved. If you took a hit on some bullish trades today, you might just want to sit on the sidelines for the next 2-3 days and see which direction we are likely headed in next. I think that we are headed lower. Higher oil and gas prices will start to affect almost every area of the economy. You will start to see companies revise their forecasts and lower expectations for the upcoming quarters. This will inevitably lead to further downside pressure on the markets. I might be getting too far ahead of myself...let's first see how we trade tomorrow.