REVERSAL?

That was a pretty amazing reversal during the last hour of the market. There were a couple of signals that showed up about an hour before the close that predicted the possible turn around. First, the Dow Transportation Index was up 1% (about 60 points) when the Dow Index was still down 150 points. The Dow Transportation Average is often a leading indicator of the market...especially when it diverges (positively or negatively). Second, I checked the VIX and the VIX was down about a $1 with the market still down big. When the VIX is moving in the same direction as the market...pay attention. Volume was pretty strong. I don't think this is the start of a major rally, but we could get a short term bounce off of this day. The sharpness of the late day rally looks to be the result of "short covering". This can last a few days as the short sellers take profits from this recent move down. Trading the rallies within downtrends is a very dangerous game. I've seen traders give back all of their profits trying to time short term rallies. If you didn't get into any short term bullish trades at the close, be patient. Wait for a rally and buy more puts for the next move down. The market was extremely oversold so this reversal was somewhat expected. The big question is how high can we rally. A lot will depend on how we trade tomorrow. I'd look at the 1150 to 1172 area. If the European markets stabilize...and if we move above 1172, it is possible that we could move back up to that 1220 area. If the rally fails tomorrow, we will likely move down and test that 1040 support area. I still feel that we need to test 1040 before the markets can mount any significant rally...but today's reversal was impressive. If you are in any bullish trades, take the bulk of the profits off the table on any significant move up. Keep stops fairly tight. You could use the 1100 area on the S&P 500 as a stop loss point. TZA and FAZ are pulling back. This is good news if you are looking for another trade. Wait for them to drop a bit further. I hope you took my advice, after last night's posting, and took profits on TZA and FAZ. If not, you likely gave back a lot of profit today....and hopefully learned a good lesson from getting too greedy. LVS looks like a good short term bullish trade if you use the $36 support area as a stop. I'll emphasize short term bullish trade.