SUCCESS STORY

Jerry,

I bought the ADS Sept 60 call and had a profit of 82%. Absolutely shocking! I bought at $2.25 and put a trailing stop on the position last night to exit if the last price paid dropped by .15 cents. It stopped me out leaving me with great returns; the 82% is my return after commissions both ways and the price of the investment. Again, pretty amazing!

I see the price of the option went higher after I was stopped out. Not to worry though I took my profits just like you taught us and I am thankful. YIPPEE!

Kind regards,

Jeniffer

NOT YET

The market started to sell off on Friday after the release of the not-so-great unemployment report. However, the sell off only caused a minor spike in the VIX which led me to question the strength of the sell off. The buying that came in at the end of the day looked to be caused by a bunch of short covering. This means that the sellers are still lacking the strength and conviction to push the market down. This also means that there is a good chance that the S&P 500 might break above 1131 in the next day or so. This could change the direction that I have been playing the market. You have already seen me point out a couple of possible bullish trades to keep an eye on. There could be more if we break above 1131. These current market conditions require a lot of patience. You should be significantly cutting back on the amount of trades you are making. Many impatient traders will over trade during these conditions, then complain about why they aren't making any money. The market isn't paying out a lot of money to directional traders right now. The spread traders are making some money, but they are even taking in smaller amounts due to the reduction in volatility. Don't be afraid to sit back and wait. When we start to get more confirmation on the next market move, the money will again seem easy to obtain. You can't force the market to pay you when you want to get paid. This is why you should always trade with money you can afford to lose. It is almost impossible to succeed when you trade with money you can't afford to lose. You have an additional emotional attachment to that type of money. You will rarely follow your trading plan because you can't afford to lose any of it. You will also end up over trading in markets that you should be sitting out because you need to make "X" amount of dollars by next Friday. Don't ignore these economic reports...especially the ones related to unemployment and housing. These are key indicators for a recovery. The CEO's of these major corporations are experts at squeezing good earnings out of these companies...even if the economic recovery is slow. However, they can't do it forever. If the employment and housing numbers don't start to show improvement, you will start to see an effect on these company's ability to make money. A "double dip" recession is still a strong possibility...and we are getting close to October. Many of the worst crashes have occurred in October (the crash of 2008 almost made it to October...it missed it by two days). Even though I may turn more bullish if we move above 1131, I will still be cautious. IBM and PG have both looked like good trades so far. I only need one of them to work out, but so far it looks like they both might.

SUCCESS STORY

Hi Jerry

Last week I decided to start trading after lesson 4 last Thursday. What I have learnt from you has started paying off. I made a 29% return on my trades within 1 week. I placed calls on JNJ 57.5 and ADS at 60 strikes and sold them before the market closed today.

I read your blog carefully and trade with caution.

Have a good weekend.

--
Rob T.

ALL EYES ON FRIDAY'S UNEMPLOYMENT REPORT

With not much else out there to move the market, it looks like all eyes are on tomorrow's unemployment report. Whatever the outcome of the report, we should start to see a move one way or the other. If we do end up breaking above 1131 tomorrow, don't run out and start buying calls on everything. One more decent move up would put the market a good distance away from its 50 day MA, making it vulnerable to a pull back. Start looking for some bullish trading opportunities. I'm watching INTC. It has a nice possible bullish ABC pattern with about a 50% retracement (56.4% to be exact). It is just below a convergence of its 10, 50, and 200 day MA's. If we break above 1131 on a big move up, this stock could move above all three of those moving averages. This would be a pretty good bullish signal. I will emphasize that you must wait for it to get above those MA's. If we start a major sell off, this stock could end up going much lower. I got into two range bound plays today near the market close. I bought puts on IBM and placed my stop above 133. This stock has moved in a range for the last 8 months between about 132 on the upside and around 122 on the downside. It is currently around 132. If it fails to move down this time around, it will be a small loss. If it does move back down to 122, the trade would have about a 5:1 reward to risk. On the opposite end, I bought calls on PG. This stock has been in a range for about the last year between 59 on the downside and about 64 on the upside. The stock is near 60 and my stop is below 59. Again, the reward to risk is fantastic. Not quite a 5:1 like IBM, but it is around a 3:1 reward to risk. If we move up or down from here, one of those positions will make some nice money...enough to offset any loss in the other. If they both work out (which is very possible), it would be fantastic. NFLX is also on my list of possible bullish trades, but I'd like it to get back above its 50 day MA. For those that want to play the wheat news, try ADM. I don't know that I would chase it immediately after today's move, but I am looking into using a Bull Call Spread or maybe a Bull Put Spread. You can also look to play the fertilizer stocks like MOS, POT, AGU, CF, IPI, and SQM. They all need to pull back a bit, but start watching them. I got out of my trade on GLD a few days ago when we moved up above the resistance at 116. If we move back down below 116, I might get back in. A move below 116 should signal a continued move back down to around 102. I think that the big signal for another move down would be a gold close below 1156. I've mentioned a few ideas to open the blog tonight, but I'll still recommend that students sit on the sidelines for at least another day or so. Don't be afraid to sit out for a while until a clear trend emerges. Many of the trades I am doing right now are hedged positions. I highly recommend using ATM or ITM options right now and give your trades plenty of time. October expiration might be better for some of you (if that month is available...use September if it isn't). I'm prepared for a possible move above 1131. The sideways price action of the market over the last three days points to at least another move up. That is just a probability, it doesn't mean the market has to do that. If we have a decent sized sell off, check the VIX for a big spike up. If there is a lot of fear behind a move down, it will be more likely that there will be more selling to come.

STILL WAITING...

Today's move really didn't tell us anything. It also doesn't look like a topping pattern so far. Topping patterns are strong reversals that take place after a high is reached. If we gapped up tomorrow morning, then immediately started to sell off, that would be a strong topping pattern. If the pull back is controlled and in small choppy moves, it makes it more likely that the market will move higher. This sell off would really need to take place starting tomorrow. If we have another day like today, my bet would be that we will break above the 1131 area.

PULL BACK COMING SOON?

The rally today took the Dow above its June 21st high. It did not go above that high on the S&P 500 or the Nasdaq. The volume, however, was on the lighter side. This tells me that the latest run up could be losing some steam. We are probably due for a pull back in the market. I'm still not quite sure how to interpret today's move. Either the generals (Dow average) are leading the way and the troops (S&P 500) will follow, or the troops are about to move in the opposite direction. If we do pull back tomorrow, I will watch carefully how we pull back. If we sell off on higher volume and a spike in the VIX, I'll expect the market to start a big move down. If the pull back is choppy and the volume is average (and no big spike on the VIX), I might start recommending some bullish trades with the expectation that we will move higher. If we end up moving higher tomorrow, I'll watch the 1131 area on the S&P 500 and I'll still expect a pull back soon. For most of you, I'd still recommend sitting on the sidelines. Wait until you get stronger confirmation from the market as to which direction it is heading. I took on an aggressive put option play on the SPY. I bought puts expecting at least a short term pull back. I will stop out if the SPY moves above that June 21st high.

EARNINGS SEASON WINDING DOWN

Sorry for the lack of posts last week. Not much new was happening in the markets and I needed to take a break from the blog. This week could be a critical week. Earnings season is winding down and there are a lot of economic reports coming out in the next few weeks. With no big earnings announcements to counter the economic news, the markets could start to retreat. This week I think we will either get a move above the 1131 area, or a strong sell off which could trigger the bearish scenario that I've presented over the last few months. When you follow the blog, please make sure you are aware of my longer term outlook verses the shorter term expectation. For the last few months, I've said that I think the market will continue to trend down through the end of the year. This doesn't mean that it will go straight down for 5-6 months. The market always "stair steps" up and down. Right now I am looking at this latest move up as a rally within the larger downtrend. As we moved above the 1040 area on July 7th, it became apparent that we were in for a market rally. I expected a shorter rally, but it now looks like a very deep retracement of the downtrend. Although I'm expecting the downtrend to continue, I'm also preparing myself for a possible market move above 1131. If this happens, I will be forced to rethink my bearish outlook. I try to analyze the markets based on what the charts tell me. I don't really care if the markets go up or down as long as they move. I can make money in a choppy market, but the money comes a lot slower. Some have felt that I have ignored some of the positive signals in the market over the last month and have "dug in" on my bearish outlook...perhaps because I have taken such a strong stance in predicting a big move down. This is simply not true. I always consider the news...good or bad, but I analyze it based on the chart patterns. I'm not saying that I operate without a market bias, but I am saying that a market bias won't prevent me from trying to make money in the market. This is why I'm prepared to turn bullish if the charts tell me to turn bullish. What I am looking for this week is either a move above that 1131 area, or a big sell off in the market which could trigger the next big move down. Keep an eye on the VIX. If we sell off more than 150 points on the Dow and there is a significant spike up in the VIX, we could be in for a very large sell off that could finally bring the S&P 500 down to that 950 area I've been talking about. For anyone that trades these possible moves, use in-the-money options with a delta of around .70. The traders that are in trouble with their previous trades are the ones that bought out-of-the-money options and failed to follow my advice to stop out when the market moved above 1040 early in July. For those that used in-the-money options, they could get bailed out if the market starts to move down in the next week or so. They also had an opportunity to roll out their options to September or October when the market moved down on July 16th and 21st. In-the-money options are just a safer play in these uncertain markets. Stop losses are also important. You don't always have to use actual stop losses (I don't always use them), but you still need to know where you will cut your losses when a trade goes against you. Those that want to be more aggressive can enter bearish here and place a stop above 1131 on the S&P 500. If you have bearish trades on individual stocks, look to stop out if the market goes above 1131. I recommend that most traders wait until we get some sort of confirmation...up or down...before getting in. I know many of you are anxious to overcome some drawdowns, but be a bit more patient and it should pay off for you. Watch how the market closes tomorrow. The buyers have been coming in at the end of the day for the last 4 trading days. If we have a down day that can close at the lows of the day, look out.