WHAT WILL HAPPEN NEXT?

This was the main theme of most of my emails today. One thing that we have to accept as traders is that no one knows exactly what the market will do. We look at patterns and we gather clues, but no one can perfectly predict the future direction of the market. I tell my students this from lesson 1 of Course 1. Since we can't perfectly predict the market, we need to be good at managing probabilities. To effectively manage probabilities you need to be good at money management and calculating reward to risk. Based on the recent price action, the probability was that the market would continue lower. With today's sudden rally, it reduces that probability...but it hasn't yet completely eliminated it. The bearish argument would be that we haven't yet moved above the February 18th high. Until it does, we can still assume that the market will head lower. The additional argument would be that oil is still moving higher (it didn't drop much today) and that will continue to put pressure on stocks and future earnings. Also, the trouble in the Middle East has still not gone away. The bullish argument would be that we are again rallying off the 50 day MA. That this is a great buying opportunity after a shallow pull back. That oil will pull back as soon as the Middle East issues move to the back pages of the newspaper and earnings will continue to grow. We will need more confirmation to know which argument will win out. The strength of the bulls today scared me enough to exit my put positions on DIA, SPY, and QQQQ. I held on to my GLD and SLV trades. If the markets are going to roar back, it will start with the quality stocks that had great earnings this last quarter. I added a few bullish trades today and hedged them with calls on the VIX. By the way, there was a bit of a divergence in the VIX today. Although the market moved above its March 1st high, the VIX didn't come close to its March 1st low. I'm not saying that it is a strong bearish argument, but something to keep an eye on. Just like the Tuesday high was a key level for the bulls, today's low becomes a key level for the bears. If we reverse this rally within the next few days and close below today's low, you would need to consider buying puts again. For those that have taken a beating over the last few days, you could wait on the sidelines for either a move above the February 18th high to buy calls or a move below today's low to buy puts. For those looking for at least short term bullish trades, consider the following stocks (and these would be just a few...if you have favorites that have similar patterns, jump in on those): DE, OPEN, MU, CAT, CLF, AAPL, ISRG, WLT, PCLN, IBM, JPM, XOM, UTX, DD, BAC, BA, WPI, MYL, MEE, and VLO. These all have a classic bullish set up for the methodology I teach in the course. Place stops below their recent lows. I might also look to buy calls on the USO if oil does pull back a bit. I think that in the longer run higher oil prices will lead to inflation which will start to affect earnings...but for now I'll respect how strong the bulls have been these last 6 months and I'll try to follow the current price action. Remember what I always say..."the price is always right".