MERRY CHRISTMAS AND A HAPPY NEW YEAR

I want to wish everyone a very Merry Christmas, Happy Holiday, and a very happy and prosperous New Year. I look forward to working with you in 2012. I think it is going to be a great year for trading.

We are making some changes to the blog which should start in January sometime. These changes may affect your ability to access the blog...especially if I don't know who you are. Before these changes take affect, I'd like to create a list of all the students that are currently following the blog. If you want to be included on this list, please send an email to myoptionmagic@yahoo.com. In the email, please include the following: Name (first and last), email address, brief background information about yourself (this is not mandatory, but I'd like to get to know some of you a bit better), and some brief feedback on the blog (what you like and dislike). Make sure you send the emails to myoptionmagic@yahoo.com. I don't want these emails to get mixed into my regular email account. I'm really excited about some of the changes that are going to take place. I look forward to working with you this next year and I hope it becomes your best year ever. Thank you for taking the time to send me this important information. As a reward for your time, I will set up a free webinar this January for all those that send me their information.

NO VIX CONFIRMATION

You can now see why I wanted that VIX confirmation before becoming too aggressive. With the VIX now down near 21, the market looks like it will rally or chop sideways through the end of the year. I'm going to take the last two weeks off, but I will try to update the blog if there is any major move. We won't look to turn bearish again unless the S&P 500 drops below Monday's low...and the VIX starts to spike up near 30. The volume in the market should start to lessen as we get nearer to Christmas. I don't usually trade the last two weeks of the year. Most professionals take this time off. Usually the only ones trading during this period are the amateurs and the professionals that are trading against the amateurs. Because of this, you can sometimes see some weird moves in the market...and some swings back and forth. The short term trend of the market would suggest a bullish bias for at least a few days, but the longer term outlook is still bearish and the market can still turn at any time. The safest play is in cash right now. Enjoy your holiday season. Have a very Merry Christmas and a prosperous New Year!

BREAKING SUPPORT

The Dow became the last major index to close below its 50 day MA. This shows that the sellers are clearly getting control of this market. Everything seems to be in place for another big move down...except for confirmation from the VIX. I would still like to see the VIX spike up to around the $31 to $32 area. Until this happens, the market would likely move more sideways...or even rally a bit. There hasn't been any panic selling as the different market indexes have dropped below their key support areas. Until the panic kicks in, I don't see the sellers getting too aggressive with their short positions. Last week I said that the selling should start if the Dow closes below its 50 day MA. That would mean that a bigger move down should start tomorrow. If the Dow rallies back above that moving average tomorrow, we might have to wait until it drops below it again before the sellers get more confident.

Here are some bearish patterns that could be nice put option trades. Use February options since they are now available: GLD, SLV, CF, BIDU, WYNN, LVS, MS, JBLU (with a stop above today's high), BAC, JPM, CVX, DD, IBM, MSFT, and PFE (both with a stop above today's high). I don't expect you to trade all of these patterns. I don't want you to get overly aggressive on your bearish trades...at least not yet. You can look at some of these potential trades and apply what you have learned in the course. Set up stop loss and profit targets, calculate your reward to risk, and set up a money management plan. Keep in mind that the last two weeks of the year tend to be flat to slightly bullish. This could allow for the markets to have a short term bounce before heading lower. That said...since so many traders out there are expecting the markets to fall after the end of the year, we might just get that drop a week early. For those that want to be more cautious, you could wait a few more days if the markets start to rally a bit. You might even be able to get a better entry price.

Some call option trades that would take advantage of a bearish move in the market would include FAZ, TZA, and TLT.

CRITICAL AREA

The Dow closed the day just above its 200 day MA. The S&P 500 closed just above its 50 day MA. The Russell 2000 closed just above its 50 day MA. The Dow Transports closed just above its 50 day MA. The VIX closed right at its 200 day MA. Almost every stock that I follow closed near a support or resistance area. The only index that broke support was the Nasdaq which clearly broke its 50 day MA...and also formed a nice bearish engulfing candlestick pattern. It's been a while since I've seen such a critical area. If we break all of this support in the other indexes (the Nasdaq has already broken it), we could really start to see the selling pressure pick up. The problem lately has been the dropping VIX. That might have reversed today. The candlestick pattern on the VIX does show a possible reversal. Watch for a spike in the VIX if we drop below these key support levels. I'd like to see the VIX spike up at or above 32 before I get too aggressive again with puts. I've been burned a bit (like some of you) on the whipsaws over the last few weeks. AMZN has moved down nicely since the recommendation....as has BIDU, WYNN, CF, and SLV. I bought QQQ puts and TZA calls at the close today. I will look to add SPY and DIA puts if we break support...and possibly FAZ calls. If we rally tomorrow off these support levels, I will continue to wait.

I am planning on taking my annual end of year two weeks off. I try to use this time to get away from the market and recharge my battery. I recommend that you do the same. Most of the professionals take this time off and it's one of the only times of the year when the professional are off in unison. If the market starts making a bigger move down...and if the volume is higher than normal for the last two weeks of December, I might stay active and take the time off later. If I do decide to take the time off, I will likely not have many blog postings unless something significant happens. I will still answer a few emails, but I can't promise that they will be answered immediately. I will likely have one or two more blog posting this week before I take my break.

SUCCESS STORY

Jerry;

As the year nears a close, I decided to take a hard look at my activity and the resulting successes/failures related to my trades. It was a bit difficult to track, but I'm certain that I came very close, operating out of three accounts. First let me state, that after having completed all three courses over the past 14 months, I can say without doubt, that I am more knowledgeable, more confident, and much more careful about how I trade. Although Trade Management was new to me, and well taught by you, Money Management has been a part of my life's work. Money Management takes on somewhat of a different meaning when you are coupling it with Trade Management. I've become a consummate student of both tools. Now for the good stuff. I began my classes last September 2010.

I didn't do much trading the first few months, and also didn't use the Virtual Site as much as I should have. It is an invaluable tool. I use it regularly now, along with my real trades. During the past roughly 12 months, I planned and made a total of 83 real money trades (many of which were disasters for the first 4 trading months). I've since turned that bad habit around. Bottom line; 32 trades hit target. 9 trades were unwound at a profit, just because I wanted to "feel good" that I didn't lose money. 4 Spreads were unwound prior to Expiration, all of which were profitable, yet all of my spread trades yielded less than a 2/1 profit ratio. 37 trades, 16 of which were naked trades lost money, with 21 trades stopped out at 50% -30% loss (and in several cases when markets had wild days, the loss was even greater than 50%. The preceding sentence illustrates that I used tighter stops on a number of trades, or perhaps adjusted my stops in mid stream.

I did some simple math beginning with my initial deposit to the real money accounts, added a few deposits during the year, took an "average" account(s) balance for the 12 months and then subtracted that amount from my current balance(s).

I'm proud to share with Jerry and my fellow students that slightly over 54% of my total trades were profitable. My current account balance, (based on my "average" account balance), is up over 78%. If you were able to follow the sequence of my comments above, you will note that I did not earn on average 2/1 or greater on my total trades, which is what we all strive for. But, on the other hand, if I am able to grow this account in a similar percentage amount for the next 5-10 years?????, well, we all know how super that would be! Additionally, what I did accomplish was not easy, in fact, I worked harder than I have worked in years.

Without Jerry McCann's invaluable help, coupled with my hard work, this would never have happened. I'm proud to have shared this information, and I have one last comment. I don't know if there are better courses out there. I do know that from my perspective, Jerry McCann is one of the best Teacher/Mentor's I have ever had. Jerry, your the best.

Michael

SUCCESS STORY

Hi Jerry, I thought it about time I gave you some feedback since tomorrow is my last lesson. I must tell you that I have had several traders who teach helping me but you are the first teacher who trades and that is why you are far ahead of all others. It has been a pleasure to be part of your class.  I also enjoy your website and know you enjoy success stories. On October 19, Rockwell Automation (ROK) popped out of MTS with a buy signal, backtested well and I liked the chart in spite of the 44 Rank. We were in the middle of stair-step, ABC pattern, etc. On the 24th I bought a call for $800 (cough). Today I sold it for $1265, a $461 profit. This is fun!! Thank you Jerry.

Frank H. 

P.S. See you tomorrow.

IS THE GRINCH GOING TO STEAL THE SANTA CLAUS RALLY?

Today was a significant drop. The VIX has started to move up again. The Dow Transports were down 2.5% compared to 1.6% for the Dow. The Russell 2000 was down over 3%. These can be a signals that a larger drop is underway. Though the Dow closed barely below 12,000, it is an important psychological blow to the bulls. Combine the technical indicators with the bad news coming out of Europe and you have a recipe for a decent drop. This doesn't mean that I'm recommending an all out rush to put options. We'd still like to see some follow through to today's move down. You could enter into some put positions on the DIA, SPY, or QQQ...with a stop above today's high (or even Wednesday's high). I entered into some FAZ and TZA call contracts at the close. I got burned on this trade last week when the Dow rallied 500 points. I'll play the probabilities and assume that rare event won't happen twice in one week. MAKE SURE YOU USE AT LEAST JANUARY OPTIONS FOR ANY NEW OPTION TRADES. I could see a scenario where we drop for a few days, then move a bit sideways through the end of the year. Most professional traders take the last two weeks of the year off...or at least the last week. Usually the only ones trading during the last two weeks are the amateurs and the professionals that are trying to trade against the amateurs. I told you a few weeks ago that I've never seen a market crash in December. This doesn't mean that it can't sell off a bit. It would be surprising to see a massive drop during the normal "vacation" period. This hasn't been a "normal" year though, so I'll be prepared either way. I still like BIDU, CF, and AMZN as bearish trades. If you have had a big draw down in your account over the last couple of months, you might want to be careful and wait for a bit more confirmation.

STILL IN LIMBO

The markets have moved up a bit since the last posting, but they aren't yet at the resistance areas that I talked about in last Thursday's posting. Even if we do hit them soon, I still think the markets will move more sideways until the end of the year. We did see the first divergence today in the Dow Transports and the Russell 2000. Both indexes were down while the Dow posted a 52 point gain. This doesn't mean that the market will plunge tomorrow, but it could be an early sign that the strength of the rally is starting to dissipate. I will watch that divergence closely tomorrow to see if it is gaining any momentum. I still recommend being in a mostly cash position. I know it's hard to be patient, but it is the right thing to do right now. Some stocks are starting to look very bearish including AMZN, CF, NFLX, WYNN, and BIDU. A continued market rally could hold these stocks up a bit...but when the selling starts, these stocks will likely be the first to drop. IBM and CAT look good for bullish trades if the market does move higher, but be careful not to over commit to bullish trades right now. I think the larger downside potential is greater than the smaller short term bullish potential.