ISLAND REVERSAL?

The bulls are still showing strength as they nearly erased a 155 point drop in the DOW. The DOW still finished down 41 points, but again the story was how the day played out. The DOW and S&P 500 are still fighting the inevitable retracement and there is a key possible reversal pattern that has showed up over the last few days. It is called an "island reversal". An "island reversal" is created when the stock gaps up (or down) near the top (or bottom) of a bullish (or bearish) trend. The prices then stay near that gapped price for a day or two (although sometimes it can be just one day). Then the price will gap down (or up) and start going in that new direction. The gapped prices look like an island...separated from the rest of the price movements. The DIA and SPY both show a gap up that occurred on April 2nd. This gap has been followed by two days of prices in the same area (see charts - DIA - top, SPY - bottom). If we gap back down tomorrow, the markets could have a high probability of selling off (although this pattern would be much stronger if we had not pulled back on March 30th). This could create a short term bearish trade. You would want to wait until the last hour of the market to make sure that the market was going to close down. If we gap up or continue to move higher, we could still continue this incredible bullish move. One area to keep an eye on is the resistance area on the SPY. We are sitting right at it. Any significant move higher could really propel the market higher. Again, you would want to watch the close of the market tomorrow. If we have broken above this resistance, you could look for a short term bullish trade. This possible movement of the market could affect any current positions you might be in. One other thing to look at...look at the price action of the financial stocks today. Almost every financial stock's price movement today was within the price range (intraday high and low) of Friday's movement. A price break out of Friday's range (either way), combined with the market analysis above, could present a short term bullish or bearish trading opportunity on the financial stocks. AAPL continues to fly...up $12 since I first mentioned it. AMZN and NFLX have also done well. This is not a good entry point for new positions on these stocks...wait for the next pullback. Also, keep watching FSLR.

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SUCCESS STORY

Jerry

These are the results for several of my better option trades.

I bought 10 contracts of the RIMM Jun 35 call @10.80 on Mar.20, I sold them @ 25.05 on Friday.

I bought 220 contracts of the CY Jun 7 call @.45 on Mar.24th.I sold them @.90 on Friday.

I bought 62 contracts of the DRQ Jun 35 call @1.55 0n Mar.20.Still open. Closing price on Friday was 2.75.

John R.

VIX CLOSED BELOW 40

The VIX closed today at 39.70. This is a key indicator for any bullish move in the future. The VIX measures the fear in the market place. A rise in fear usually translates into a fall in the market. Even though the major averages only rose a little bit today, this sharp drop in the VIX signals an increase in confidence from the bulls. In the short term the market could sell off a bit (its had three straight "up" days), but this drop in the VIX (combined with the breakout above resistance on the DIA, SPY, and QQQQ) could lead to a continuation of this bullish run. Trade management and money management is key to making money in any trend. Although we see the bulls getting stronger and stronger each day, we could get some news that comes out from some of these companies during their earnings releases over the next month that could change the direction of this trend. This is why our stop losses are so important. Avoid getting into these trending stocks too late. Take AAPL for example. It has moved up about $9 since I mentioned this pattern on March 26th. Although I think it could go even higher, I would never enter a new trade from where it is at right now. I would want it to pull back a bit. It is due to pull back. It has moved up three days in a row...with each day being a smaller move than the day before. Wait for a pullback. Some of the trending stocks I have mentioned in the blog have pulled back a little and could be even better patterns than when they were first mentioned. Still other patterns may have reversed their trends or moved below key support/resistance levels. It is wise to stop yourself out of patterns that have failed or aren't working according to plan and get you money into ones that are working. You are getting a good education as to how to trade these markets. Sometimes my outlooks or predictions are dead on...sometimes they are way off. Our job is really not to be market psychics. It is to look at the probabilities and the trends and manage those trades with sound money and trade management techniques. We want to look for signals or clues that can give us an edge or just keep us from getting to far to one side (bullish or bearish). I will look at some scans tonight or tomorrow and list some trends that I like. Have a great weekend.

BULLS GAINING STRENGTH

The bulls were fighting to hold gains today. The market looked strong early on but it did give a lot back at the end of the day. Today's move was done without the help of the financial stocks. Most of the financial stocks finished the day with very weak price patterns. Whenever a stock gaps up then sells off, it is usually a sign of weakness. Look for some of these financial stocks to sell off a bit within the next few days. This doesn't necessarily mean I would buy put options on them, but I would probably wait for a pull back and find a nice new bullish entry point. There is a lot of short interest in the market right now. We saw some evidence of that as the market sold off near the end of the day. With the S&P 500 and the QQQQ at recent resistance levels, we could get a small pullback. However, if we break above these resistance levels, the short positions would get squeezed and the market could really take off. The strength of such a move would also encourage a lot of money on the sidelines to come back into the market. I am keeping a close eye on the VIX. I'm looking for it to drop (and close) below 40. There were some nice bullish patterns that triggered "buy" signals today. I found many of them using Jesse's new trend finding software program. It is a fantastic program. If you are interested in a trial subscription, go to www.orbisadvisors.com and sign up for the free 30 day trial. Let him know that you heard about it on my blog. AAPL had another strong move today and it still has more room to roam. FSLR is also looking pretty good.

SUCCESS STORY

I bought 5 contracts of the GOOG May 340 calls @ 26.20, yesterday. Placed the order at a limit and was hit when the stock fell yesterday in early trading. Sold them today @ 37.50. Chris N.

WAS TODAY AN APRIL FOOLS MOVE?

The short term trend indicators are up but there are some reasons to be cautious of today's move. The volume was lower today than yesterday, even though we moved up much higher. A closer look at an intraday chart of the S&P 500 shows that we could have completed a B wave on the move up today. This might mean that we could drop down in the next day or two and test the support level around 770. I personally feel that a bit more of a pullback would lead to a stronger move up. This is such a critical point. We have perfectly filled in Monday's gap down and this latest rally is at a .618 retracement of the March 26 - March 30 move down. A trading strategy here would be to take a small initial position into a bullish trending stock. Buy one or two contracts and wait for additional confirmation. If it moves higher, you can always add to the position. If it moves lower, you can wait for it to come back up...then add to the position. If it doesn't come back up, then you only lost a small amount of money. I like a couple of bullish patterns on CF, GS, and MFE (can anyone say Conficker Virus).