WILL THE BUYERS STEP IN?

There is about an hour left in the trading day. The markets have been down quite a bit today, but I am waiting to see how we close. As of this minute, it looks like the buyers have come back in and managed to push the market back up from it's lows. This could still change. If the late session buying continues, it could be a short term bullish sign going into next week. If we reverse here and close at the lows of the day, you could look to buy some puts in anticipation of further selling.

TRADE WAR?

Things are getting pretty heated at the G20 conference in Korea. The big conflict is between the U.S. and China. The U.S. is accusing China of deliberately devaluing their currency in order to gain a trade advantage and help their economy. Those rotten Chinese...we here in the U.S. would never try to do something as low down and shameful as to devalue our currency to gain a trade advantage and help our economy. It is just the pure market forces that are driving the dollar lower...right? Well I hope you caught the sarcasm. This could get ugly. The Shanghai index closed down over 5% a short time ago. 5%!!!! The Hang Seng closed down almost 2%. The Nikkei closed down over 1%. Gold is down right now over 1%. Silver is down over 2%. Oil is down almost 2%. Now a lot can change between now and the market open tomorrow, but this doesn't look good so far. This is the type of thing that could trigger a major sell off if it doesn't get settled soon. If we do sell off hard tomorrow, watch to see if the buyers come in and push it back up at the close. If they do, it might be a bullish opportunity. If they don't come in and the VIX spikes up, buy puts. Buy puts on the SPY, DIA, and QQQQ. Buy puts on overextended tech stocks. Buy puts on overextended commodity stocks (GLD, SLV, FCX, and XLE). If we gap lower at the open (the S&P futures are currently down over 10 points), look to see what the VIX does. If it spikes way up, get out of your bullish trades and get ready to get into some bearish trades. I would still like to wait to see how we close, but we might then get into some late session put option trades.

BUYERS ARE STILL OUT THERE

These are crazy times, but we can still trade when it's crazy. The market has managed to pull back a bit since my last posting. This is healthy for the current uptrend. The buyers are still buying the dips. The market was down almost a 100 points today, but the buyers came in and closed it up 10. If the pattern continues, this should lead to a rally to a new high within the next few days. CSCO was down big (in after hours trading) after their earnings miss. We'll see if that is a drag on the market tomorrow. So far the selling has been controlled. I haven't seen any panic that I think would lead to a bigger drop. If I see anything, I'll post it. One thing to keep an eye on is the ETF's (Exchange Traded Funds like the SPY, QQQQ, DIA, GLD, XLF, XLE, etc.). There is a growing fear that they might be able to crash the market if there is any sort of a panic sell off. I don't know anyone who totally understands these financial products. I've been trading them for years, but I don't fully understand how they work. This makes ETF's similar to the CDO's (Credit Default Swaps) that helped cause the financial collapse. No one fully understood those instruments either. I don't know how these instruments can crash the market...but I do know that if traders think they could collapse it, that might be enough to cause a self fulfilling prophesy. Use a bank as an example. If a rumor came out that a bank might be insolvent, it wouldn't matter if it was or wasn't. People would rush to withdraw their funds just in case. This rapid withdrawal would cause the bank to collapse...even if the rumor wasn't even true...and even if the customers knew their money was backed by FDIC. No one would want to be without a chair when the music stopped. Many investors put their money into ETF's as a way to offset rising mutual fund fees. These ETF's have billions invested in them. If there is any evidence that they could collapse, it wouldn't take much panic selling to trigger that collapse. We now live in a "bubble" society...a world "bubble" society. There is always something that collapses when there is a major market correction. This one is just a theory...one of many that we could come up with in these crazy times. It might just be paranoia...but I don't want to get blindsided by something that I didn't at least consider. Financials sold off pretty well yesterday, but this could be another buying opportunity. GS, MS, AXP, JPM, and WFC...or just use the XLF or FAS if I haven't scared you away from ETF's. Keep in mind that I still plan to trade ETF's...at least for now. They're still one of my favorite trading instruments. The XLF and FAS look like they have an inverse head and shoulders pattern...which is a very bullish pattern. However...if they were to drop below their 50 day MA within the next few days, it would negate this bullish outlook. I also still like AAPL and NFLX, but we'll see how the Cisco earnings affect their prices. I'm also bullish on FCX (Freeport McMoran). Copper, gold, and silver just keep going higher. Try to keep your trades more short term. This market could turn at any moment, so we want to take profits quickly. Also, keep your position sizes small. You will not likely make up for drawdowns on this upward move of the market. The big money will be made when it turns downward. Don't put your entire account in this market...and especially don't put it all on bullish trades.

SUCCESS STORY

Jerry,

This is my first success story. Saw your blog post about GS a few weeks back on how there was a rising wedge and resistance at $162. Bought a few contracts after it broke through and then lost a small amount when it came back down. Bought in again and made about a 15% gain before it corrected back and my stop loss stopped me out at a profit. Bought back in yesterday right after the open at $7.60. Sold half my contracts today in the morning at a 50% gain and right now, have the other half up about 70% at this point with a very close stop loss to lock in the profits.

Mike R.

DON'T FIGHT THE FED

If the Fed wants this market to go higher, it could go higher. The warning I am going to give you is to be careful. You can try to trade this market higher, but don't forget some of the warning signs that I have been talking about for the last several weeks. I made money today, but I got out of most of my positions at the end of the day. I just can't see how this market is going higher. The market already anticipated all the news this week. In other words, it has already traded that information. The rally today felt a bit like a capitulation...or a final advance. I've said over and over that this feels a lot like the internet bubble of 2000. During that period, I heard many people say that it wasn't a bubble...that things were different this time. I'm hearing a lot of people say the same thing about this rally. Jim Cramer is even ridiculing us bears for even calling this a bubble. He did the same thing during the internet bubble. What you need to know is that you can make money on any bubble. The problem is that most traders get too greedy and begin to ignore their money and trade management plans. They also fail to recognize the top and end up giving back their gains (and then some) when the collapse begins. One thing that has concerned me about this rally is that the financials have not participated...until today. This tells me that either the financials are about to rally stronger than all the other stocks in order to catch up, or the market is about to drop down to where the financials are. I haven't seen any strong bearish signs yet for the market to drop, so I will currently assume that the financials will rally. I want you to look at the chart of the S&P 500 back in March and April and compare it to October and November. There are so many similarities that it is scary...a bit of a late Halloween. Look at the MACD back then and now. It looks almost exactly the same...right up to the current bearish divergence. The RSI is over 77. The Money Flow Index is in a major bearish divergence. Just about everyone is telling you to buy into this market...and worse, they are making you feel like it has to go up. The sentiment readings are off the chart bullish (98%) which usually means that we are at a top. I know that we can remain in these crazy conditions for weeks...or even months...so I'm not going to tell you to go short or stay out of this market. I just want to warn you to be careful and be smart. If the market is going to keep going up, the biggest upside is in the financials. Stay with the stronger companies like GS, MS, and AXP. Commodity stocks could continue higher as well...gold (GLD), silver (SLV), copper (FCX), and oil (XLE), but they really need a pull back first. This is just insane. I like VMW for a put option trade, but put a stop above the 50 day MA. QCOM looks like an exhaustion gap and could be a nice bearish trade...although I would probably use a Bear Put Spread. I will end this blog posting by saying that this smells like a suckers rally. I've been through this before...although never with a Fed that is committed to printing money until the end of time. Keep your positions small and don't over commit capital to this market. If you do, it could end badly for you.

SUCCESS STORY

ok jerry

heres my story I just sold my jan SLV calls after holding them 5 weeks for a 14800 dollar profit or 78% also SLV stock for a 17 % return or 636 dollars 2 weeks and

EPD stock for a 1046 dollar profit at about 12% for a 2 month trade!

Thanks again

Keith H.

VIX WAY DOWN AFTER FED ANOUNCEMENT

The VIX has moved down quite a bit since the Fed announcement at 2:15 Eastern Time. This could signal that the market thinks that things will go higher...at least in the short term. If we do move up in the short term, pick stocks that are already trending upward. FCX and AAPL are two that immediately come to mind. The market had traded all over the place since the announcement, but the VIX has been pretty steady in its decline.