Sunday, November 30, 2008

This Week's Trade 12/1

Going into the month of December the market is coming off a one week rally where we have went up 21%. Yes, 21% in one week. As the chart to the left shows this brings us right to the 900 resistance level which is just above the 20 day MA. It also brings us to the downtrend line that has been in play since mid Sept. I am starting to see some interesting things forming on the charts and have gotten a little more bullish since last week. The SPX has a nice falling wedge pattern setting up on the daily chart. This pattern will probably take a little longer to play out as it is still forming. However if the SPX gets over the 920s we could be in for a much larger rally than most think. I tend to think between now and Jan-Feb timeframe we could be up in the 1050-1100 range. Remember even if we rally up to the 200 day EMA which sits around 1187, we would still technically be in a bear market downtrend. But nevertheless it is very possible we see an intermediate rally in the coming weeks.

With that said, we just rallied up 21% in one week, on relatively light volume by the holiday shortened week. We will pullback this week. The question is how much of the most recent advance will the market retrace? I would expect us to come down to the 850s at the very least to test support. I tend to think we may have seen the lows for the year but who the hell knows. Just saying that I see a bullish falling wedge on the chart and cannot ignore this. Also the weekly and daily RSI is showing positive divergence on the SPX and this is a very telling signal that we could climb higher from here.

Economic data coming out this week includes Monday's Construction Spending and ISM Index. Tuesday is Auto and Truck Sales. Wednesday we get ADP employment, Productivity, ISM services, and the Fed Beige Book. Thursday is the all important Initial Claims and Factory Orders. Finally on Friday we see November Jobs data.

All in all it will be a interesting week to see how the market reacts to higher volume and more data. The charts are at a decision point. We are at 900ish and could run up to 920 quickly or selloff and retrace some of the recent rally. I'd bet on the latter to begin the week at least. We shall see how the week unfolds.

Thursday, November 27, 2008

Thanksgiving Chart Pattern

Watch Nov. 26.08 :: Turkey Trade using Technical Analysis in Entertainment Videos  |  View More Free Videos Online at
Just wanted to share this interesting pattern I saw in the charts today. Could be very bullish. Let's call it the Thanksgiving day chart pattern and see how it plays out. Happy Thanksgiving traders.

Wednesday, November 26, 2008

Bulls, Bears, and Turkeys, Oh My

So today you did very well if you bought the morning gap down and came back at 3:55 pm ET and sold, lol. But for those of us that were holding some SDS well we got squeezed like a turkey. Anywho, I'm out of the small SDS position I put on earlier in the week. The market internals were very strong all day today. Up volume on the Nasdaq reached 92%. With the market closing strongly just above the 20 day EMA on the daily (albeit low holiday volume) we gotta take notice and adjust our bias accordingly. It is fairly positive that the market rallied this week on terrible econ data (namely the durable orders, initial claims and home sales numbers this morning) as well as the unfortunate terror attacks in India. When a market reacts positively to bad news that is extremely telling.

We could pullback Friday or we could continue the week's bounce as it will only be a half day. Next week should be interesting as the volume and big players come back into the market and decide if we break over 900 finally or stay rangebound. Who knows. I will wait for the charts to tell me that.

Otherwise enjoy the holiday and have a safe Thanksgiving.

Tuesday, November 25, 2008

Still Waiting

Well I am still waiting for this market to show its direction. I am bearishly tilted right now simply because we have ran up 120 SPX points in 3 days and we are having a bit of trouble with the resistance overhead. Namely the 865 area we were turned away from today and for a while it looked like this market was going to fall off a cliff as it hit lows of around 835 before reversing higher in the last hour and closing pretty much unchanged for the day. We actually closed lower than we opened so thats something to take note of. 20 day EMA on the SPX is just overhead at 879 and I think the market will have a hard time breaking over that. With that said it is a holiday week and you should start to see light volume Wed. so we could see a continued dead cat fakeout rally into Thanksgiving.

I am still holding some SDS calls and will cut my losses if the SPX 15min chart closes above the 875 level. If we roll over from here I can convert my long call into a vertical call spread and roll down to lower strikes simultaneously lowering my breakeven without increasing my risk. I am starting to see a large falling wedge pattern develop on the daily chart, evolving from the descending triangle that has been forming for two months now. I will highlight this falling wedge in another post as it is still young in its formation. Even so it looks as if we are coming up to the upper part of the wedge/channel and should have a hard time surpassing the 875-900 area so be warned that probability of a selloff from here is higher than a rally. But like I said, holiday shortened weeks have a tendency to be quirky.

Monday, November 24, 2008

Bull Trap?

The bulls were off to the races this morning after the news of the Citi bailout. Shocking. The dollar took the news just as it should have with just about the biggest hammering of the year. Euro closed up over 400 pips, which is simply insane. Oil popped 5 smackers, and gold shined with a move clear back to 830 before retracing to 820. It seems like this market was going to roll over after about 2pm et but the bulls sent the shorts into cover mode and drove this SPX to 865 before it spiked down fast in the last 15mins. I did not think the last 15min candle was very inspiring to the long thesis so watch that 860 level Tuesday to see if we get a decisive breakout.

We have plenty of reasons for a multi day rally this week as it is deeply oversold and stochastics look bullish on the daily chart after the gap up today. However, resistance at 865, 880 and 900 is going to be very tough to break. Anything can happen of course but keep an eye on those levels. A downside break of 825-830 will be bearish in my opinion. While we are due for a continued rally during this holiday shortened week I would be cautious with all that tough resistance overhead.

I scaled into some SDS calls late today (which is a bearish position on the market) and will hold these until the market shows me I'm wrong. In the meantime how about that interview on CNBC with Prince Alwaleed? Lol, might have been the best interviewee ever on CNBC with the million dollar glasses on and cane while he sat in his gold plated throne. Lol, lookin on Youtube for it now.

Hitting Ceiling

I am looking to short this market here in the 840-850 area. Market still showing some strength but weakness is likely up here. The daily chart here shows the support we broke thru and now are retesting the level but now its resistance. This is a classic sell signal in my opinion and it would be surprising to me if we continue up towards the 900s but of course anything can happen. The risk/reward is good here for a short so I would take a position in SDS here in the low 100s or any other double inverse. Puts on the QQQQ or SPY could work as well. If we break thru the 880s u should cut losses. Only take the trade when we see the charts rollover here.

Sunday, November 23, 2008

This Week's Trade 11/24

Well after another volatile week in the markets I am back from Vegas and ready to get back into action! Friday's late day rally should not be cheered because in my opinion it is an even better sell than it was on Thursday. I think this week we could see one of two things. We could fall thru the floor and end up near Dow 7000 and SPX 700ish. Or we could trade mostly sideways since it is a holiday shortened week and that means that volume will be relatively light by Wed. It is inevitable that we fall at some point and really see some washout selling to the downside but its just a question of whether it happens this week or next. Let's see what the charts say.

After falling Wednesday and closing below the previous lows near 825 SPX the market went down till midday Friday where it bounced from a low of 740. The 825 level is key support on the daily chart and it was broken with heavy selling last week. Friday we saw the SPX come back to close near 800 on the cash. I believe this is nothing more than a dead cat bounce that will fakeout the amateurs into hoping we have bottomed. We will rally up to resistance (which was previous support at the 825ish level) and then sell off massively from there. In my opinion we will be lucky to even test the 825 area but if we do it will be one of the best selling opportunities you will see for a while. When support is broken, that same level is usually retested as resistance, where it subsequently fails and the price action rolls over.

I believe that we could see 700 in the SPX within a week or two and ultimately the Dow could even fall to 6500 by year end perhaps. We are at support levels that go back to 10 years and if broken, the charts are saying we are simply not done with this brutal bear market.

The VIX could easily top the 100 mark if and when the SPX drops so all I will say is please do not try to sell volatility just yet. You will lose your shirt. I spoke to a pro trader from the CME at the Traders Expo this past weekend and he said that he has been tracking the VIX since it was invented and has never seen such consistently high levels in the VIX. This is a sign that we have a new norm in volatility. He also said that he has tried to sell the VIX twice already since Oct. and lost in both cases.

Economic data for this week includes Monday's Existing Home Sales. Tuesday sees Prelim. GDP for the 3rd quarter and Consumer Confidence. Wednesday we get Durable Orders, Initial Claims, Personal Income and Spending, Chicago PMI, Mich Sentiment, and New Home Sales. The Thanksgiving holiday will close markets on Thursday. Friday will be a half day.

I dont have any specific recs this week because I am looking for a major breakdown here and want to see how Monday acts. However, if we fail to break above the 825-845 level with volume then I would be a seller of this market almost instantly. A break below the 770 level would make me even more bearish. With a breakdown the best play out there may be SDS. Trade safe and obey your stops this week.

Las Vegas Traders Expo

Here are a few pics from the 08 Traders Expo I just returned from. It was a great trip and a fun experience where you could network with other traders and attend free workshops and seminars instructed by some of the most knowledgable traders in the world. A few traders I got to meet up with included Robert Hoffman, Tim Sykes, and Greg Weitzman. Also I was able to attend seminars with Jon Najarian, Mike Coval and several other traders from across the country. Back to the pits Monday!

Tim Sykes was nice enough to take a pic and give me a free book and sign it in between trying to short some stocks on his MacBook, lol. I enjoyed talking stocks with Tim and think he is a great guy.

These babes offered me $1.00 commissions from Solaris Securities and then tried to tell me they were brokers, lol.

Jon "Dr. J" Najarian answering some questions after his great seminar on trading options.

Myself and some of the crew from enjoying a round (or two) of drinks at the Mandalay Bay.

Friday, November 21, 2008


I do apologize I have not been able to do any posts the last few days but I hope from my earlier in the week opinions you would have known to not go long on any fakeout pop this week. I had a busy Wed and was not able to post lately because I am in Las Vegas for the Traders Expo till Sunday. Rubbing elbows with traders like Tim Sykes and Robert Hoffman and John Carter. It has been a fun experience so far and as I type I am sitting at Starbucks watching the ES futures bounce off 740 low and race up to 755. I will be short and sweet with this. Do not fall in love with the upside. We have not bottomed and I expect more downside. Maybe not today (although the 760s will be great resistance to sell into) but eventually this market will be going lower. I have never seen a bottom on a Thurs or Friday and surely doubt we get one the week of Thanksgiving as volume will be lighter than avg.

Tuesday, November 18, 2008

Be There Seen That

Today looked awful after the morning's double top high around 865 and prompt sell off that went all the way down to the 825 level. The last hour we saw a crazy short covering rally that brought us right back to the 850s. I don't think this means a damn thing. Forget the hype on CNBC. This market is still making lower highs and in my opinion every rally is made to be sold. The momentum to the downside is simply too strong to ignore.

With that said its definitely possible we get a muted rally attempt into tomorrow because we do have options expiration this week and it looks like they wanna push this baby a bit higher. Options ex is known to whipsaw traders out of positions. This week looks to be no different as the call and put holders try to defend their positions and finish in the money. Expect continued volatility midweek with a chance at retesting that pivotal 880 resistance level on the SPX. We are pretty much still in the triangle I outlined yesterday and are working our way towards the apex. A breakdown is probably inevitable sooner or later here but lets allow the charts to guide us into options ex this week.

Monday, November 17, 2008

Sold to You

Today seemed like every buyer out there was met with two sellers. Every pop was sold into and even the midday rally that seemed like it wanted to just go higher at first and squeeze the shorts ended up getting hit with selling into the last hour as we closed at the lows near 850. Early on the market got stopped cold at 880 resistance, yesterday I said this was a key selling level and it turned out to be true. I would continue to sell into any pop we get. I was feeling a little bullish this morning thinking that perhaps this market would climb the ever growing wall of worry and grind higher. The failure at 880 was huge in my opinion and it says that the selling is not quite done yet.

Until we get over 915 I would not be bullish. The daily chart of the SPX pictured above is showing a very bearish descending triangle forming with support near the 830-840 area. Bottom line is we are very close to breaking this pattern to the downside. I think if we see any attempt at a rally up to the 900 level is a great chance to go short. I do NOT think we have seen max pain yet. Thursdays rally should be thrown out the window as of today and if we cannot bounce with volume these next few days I will begin to anticipate a very big selloff that could drop us a quick 1000 points in the Dow and perhaps as low as 690-700 in the SPX. I am not calling for a crash but only saying the probability of us going lower and making new lows by months end has gone up considerably since last week.

There is simply no leadership and the banks looks terrible. Oil looks like it wants to break 50 and the tech stocks just should not be touched. I like very few sectors to the upside. Looking at the triangle its possible we can see a weak runup to that downward trendline but if we do you should be selling into it because I think new lows are coming. I was hoping these levels would hold and we could begin to form a base but hope is not a strategy and I gotta call it like I see it. The problem is I see too many others "hoping" the same thing. And that has ALWAYS been a great contrarian signal in the markets. Bottom line do not get caught being long in this market and especially without stops in place. Any rally should be sold into this week until we get some more clarity in the charts. Right now I know we are oversold but we may be more oversold by friday so DO NOT FALL IN LOVE WITH THE UPSIDE.

Sunday, November 16, 2008

This Week's Trade 11/17

This week looks to be another active week of trading with the SPX closing Friday at 873 on the cash and a bit lower on the futures. The last hour selloff on Friday caught lots of people off guard, myself included. I think it was just a Friday into the weekend no body wanted to be long ahead of the G20 and match that up with the hedge fund redemption deadline and we saw lots of selling in the last hour after the market raced up to the 915 level earlier. Futures are getting a nice pop as of this writing Sunday night.

For this week I think it is fairly simple technically. To go higher the SnP's need to get over the 880 mark and if we rally further then 915 resistance will become the key level. We most surely would need this market to hold the 845-855 levels to prevent another leg lower. I think we could be setting up for a nice ascending triangle on the 15min chart if we hold current levels. As Johnny from says here the 915 level provides tough resistance for this market as it was denied at 915 multiple times last week. But if we break 915 then watch for some serious upside.

Economic data being released this week includes Monday's NY Empire State Index, Capacity Utilization, Industrial Production. Tuesday we have PPI. Wednesday gives us CPI, Building Permits, Housing Starts, and the FOMC minutes. Thursday we get Initial Claims, Leading Indicators and Philly Fed.

Looking at the VIX it closed the week at a 66 handle and is just above its 20 day moving average which sits at 62. This is an important area to keep an eye on and see if the VIX can hold. I think I would be looking for the VIX to come in a bit if it cannot hold its current mid 60s area. The VIX 50 day MA is still rising and is now just over 50. It should be interesting to see if the VIX can hold above this key moving average on its next pullback which we may see this week.

Buy the Dips: APOL, DV, KR, JBLU, PTRY

Sell the Rips: WY, ALL, CMED, GLD, AKAM, BAC, BAM

Overall I am expecting a small rally higher this week but I do not think we have bottomed. At the least we will probably retest the lows in the near future. Who knows when but before that I think we can see a bit more upside in the SPX so lets start the week with that bias and see what Monday brings us. Remember watch the 880s and 915 level for resistance.

Thursday, November 13, 2008

You Ain't Seen Nothin' Yet

What the hell was that? Lol, well just like I said 865 breakout gave the market one of the biggest short squeezes we have ever seen! The ES futures literally had like a 95 point range on the day. Just spectacular. The shorts got hung by the neck today in the last 3 hours as the market hit a low of 816.75 in true capitulatory fashion. Then recovered all the way back to breakeven, and virtually without pause, rocketed higher into the closing bell on huge volume (4.2 mil on ES, and 753 mil on SPY) to close around 910. Absolutely incredible. It was almost like you could feel it mounting as it rose and you knew it was just a melt up that would not end till they rang that bell.

I think this sets us up for at least a few days of continuation. Why dat? Simply because we had a classic textbook example of an outside day pattern today on pretty much everything! Outside day is a very bullish pattern that says a continuation of a few days is very likely. You ain't seen nothin yet!

Ok lets not fall in love with the upside here traders but when I see a rally like this with volume like this, I see several days or even weeks of continuation buying. Until this signal reverses or changes I will be bullish because this was a very important POSSIBLE inflection point. I am not calling an end to the bear market at all! But I am saying we are probably going to rally in the short term and why not make a few bucks to the upside right? If you think you missed the move today, just patiently approach the next few days with a buy the dip mentality and dont get too emotional out there. Basically throw a dart at the board and buy it on the dip. I like AAPL, INTC, AA, DRYS, as high beta plays in the next few days and in order of least risk.

Cliff Diving

I was triggered out of the SBUX this morning and this market saw an extreme dump and flush in the markets at midday. Es futures hit 816.75 before snapping back positive and now printing 860! Unreal. I am gonna make this short and sweet. A breakout over 865 on heavy volume and we rally. We rally big. But if we fail at 865 resistance then we could come all the way back down and GASP!...make new lows? Who knows but I will let the charts tell me where we go from here. Anything can happen guys and as long as you accept that fact then you can take the trade much easier without emotion and opinion interfering. Honestly I think we could see a rally higher but trade safe!

Wednesday, November 12, 2008

Danger Zone!

If you are still in the SBUX trade keep your stops underneath 9. I am holding a very small amount of Jan calls but if this baby doesnt confirm strength Thurs into Friday we cut and run and find the next opportunity.

Anyway, what a terrible tape we have dont we? Like I said yesterday if we break 900 on the SPX then watch for 860. Well we blew right thru that like a hot knife thru butter and finished the day at 852. Now after hours we have INTC coming out and lowering revenue estimates and saying demand is falling off a cliff, lol good timing Intel, thanks. We are in the danger zone here folks. If the market was playing the role of Goose then I'm not so sure Maverick could help him if he tried.

I was expecting a big move in either direction today and wanted to go long an SDS strangle but I was a day late on that play as the SDS just ran away like a scalded dog from the open today and ended higher by about 10%. Unreal action we are seeing lately. Looks ugly out there and we are going to test those October lows imminently it appears. Closing low on the cash SPX was 846 and the intraday low on the cash on Oct 10 was 839. However the ES futures got down to like 825 that morning I believe. Either way you slice it we NEED to hold these lows or else you will some unpresecented selling action that could have us challenge the lows of the end of 2002. Yikes.

Futures are already down in the 840s as I type and Asia should not make things better when it opens up. I fully expect a gap down scenario in the morning but it will be very interesting just to see how much we open down. I kinda wanna see a massive washout tomorrow so we can just flush out who ever is left and plant the flag so to speak. Its like the market has food poisoning and just cant quite puke, lol. Interesting to see the VIX only at 66 today even as we get back to the lows of last month when the VIX of course hit 89. Hmm not quite sure what to make of the divergence just yet. Initial claims out premarket so that could affect the market. Sit tight and watch for relative strength whereever you see it. Otherwise watch out for volatility into the weekend and dont be scared to scalp the futures to the downside perhaps on weak bounces.

Something Brewing in SBUX

I see a possible "W" pattern forming in SBUX and think its a great time to go long some shares or call options at these levels as it presents a very favorable risk/reward. Starbucks announced terrible earnings on Monday after the close and the stock gapped down and opened at 9.50 on Tuesday. It rallied back and was actually positive late in the day getting to 10.27 before closing at 10. The volume was strong at 26 million. Stochastics are also getting towards an oversold level and may start to turn up. Whenever you see a stock react POSITIVELY to bad news, its telling you something. In this case I think SBUX is saying that it wants to go higher.

I would buy a half position in the stock here at 10.00 and add the other half on confirmed strength over 10.3 Wednesday. Keep a tight stop below the 9.40 level or if you wanna risk a bit more keep your stop under 9 which is just underneath the 52 week low made last month. I do not see SBUX breaking that level but we are traders and must obey our stops like I always say. Predetermining your exit strategy is the best recipe for profits. I can see the stock getting to 11 quickly if this market behaves with eventually SBUX seeing 12-13. This is a swing trade and will probably be given no more than a few weeks to playout.

Assuming SBUX stays over 10 and builds strength on Wed. I will be buying some call options. I like the Jan 11 calls for 90 cents or better. Or if you wanna take a bit more risk try the Dec 11 calls for 65 cents or better. Again if SBUX shows weakness by week end or breaks under 9.40 you should cut your losses but this is a decent risk/reward setup I like here.

Tuesday, November 11, 2008

Turbulent Tuesday

Well it was definitely a wild session of trading on Tuesday. Gapping down in the morning and then stabilizing before rocketing higher to almost the breakeven mark by the 220 reversal. However in the last hour the market just could not hold its rally and sold off from the 915 level to close just under the 900 mark. The last hour selloff does not inspire me to be bullish headng into Wed. I am seeing a slanted head and shoulders pattern on the 60min chart of the ES futures which could send us clear down to the 860 level as a conservative measurement. This pattern could be confirmed if we cannot break back over 915 this week. I would not be outright bullish on the market until we can clearly get back over the 930s with volume..and even then I'm only cautiously bullish.

The only bright spot today was the fact that GS actually rallied into the close and ended the day like 8 dollars off its lows. Unfortunately the market as a whole didnt catch on to that fact. I would continue to watch GS and C to see where the market could go. Lot of chatter about Citigroup in deal talks and GS in a heap of trouble. Dont listen to the rumors..just watch the price action and you should see the truth unfold. Stocks dont lie, but people do.

Otherwise, oil hit 58 smackers today and looks like it wants to go even lower Wed. after the inventory report so I would not touch anything oil related unless of course you are shorting :) Overall the volume was sort of light today again as I expected and we are really just stuck in a range here at 900. I think we could get a big move in the next few days, whether its up or down I dont know but I tend to have a bias to the downside at the moment. I'm liking SBUX here for a long trade possibly with a nice tightly defined risk/reward and perhaps a strangle trade on the SDS. I will go over these ideas in another post but those are my thoughts for now.

Monday, November 10, 2008


So alot has been said about the VIX and where its going lately. To review, the VIX is a statistic that reads 30 day ATM implied volatility in the SPX, or a general market barometer of fear. The higher the VIX goes, the more traders are willing to pay for put options on the SPX. Its pointless to guess what is a buy in the market based on the VIX and what is not. Before last month everybody thought 35-40 was an absolute panic state and was a good sign of a market bottom. Well that did work for the early part of the year but in the past month things have changed and changed big time. We have entered a new period of higher volatility and I think it is here for a while.

Anyway, interesting article out of Schaeffer's on Monday talking about the discount to Historical volatility that the VIX is trading at lately. In other words HV, or volatility of the SPX index itself, is much higher than IV in SPX options and therefore the VIX is trading at a discount to the SPX historical vol even at these lofty levels. The reason this is important is because before a bullish advance in the markets you would want to see the VIX trading at a significant "premium" to historical volatility, and it is not. As the chart to the left shows, during much of this volatility since Sept. the HV of the SPX itself actually traded higher than the actual VIX. This happens only very rarely and is sometimes troublesome as Joe Sunderman, Vice President of Financial Market Analytics, goes on to say:

It is difficult to draw a quantitative conclusion when there are so few historical references to draw upon. I do feel that this discount in the spread is a troublesome development. I remain concerned with the complacency I am seeing among option players. Bulls would want to see the VIX trading at a steep premium to SPX volatility, as a sign that fear is rampant among the investing community.

He makes an interesting case that perhaps we might have not seen the height of fear just yet. Either that or volatility is a screaming sell up here still in the 60s! Lol, but because of the fact that we have just been drifting lower in the VIX and not really seeing any meaningful collapse tells me that he could be on to something and we might just have to watch these markets for a little more turbulence. I mean you can make a case for both sides of the map here but being aware is the best way to make a decision so I will leave it at that and say keep watching that VIX; and be sure to check out Adam's site at Daily Options Report as I think he has some of the best thoughts out there on the VIX, and is a daily read imo.

How Do You Like Your Gaps?

Filled or Runaway? Well, the fact is that on the major averages I think its something like 90% of morning gaps (up or down) are usually filled at some point. Not always in the same day but still the point is that you should always be cautious if you're buying into a gap up or selling into a gap down. The market will usually tell you within the first hour or two what you should do concerning the gap. Today it wasted no time telling us that it was going to be filled and then some. The selling came in fast and furious after the open and every bounce from there was a good selling opportunity. Aside from the last hour bounce this was just an ugly day as we came all the way down to 906. Whenever a market gaps up, reverses down, and closes NEAR the lows it doesnt get me too bullish.

Yesterday I said I would be bullish above 960 and today that was just about the top in the morning so it proved to be tough resistance. I would remain on the short side or bearishly tilted in my trading until the market showed us some sign of strength in the 30 and 60 min charts. If we break the 900 level this week it could quickly lead to selling down to the 880s and further perhaps. I think really anything can happen since we should see some light volume between now and Thursday but I'm leaning a bit more to the downside here. There is simply very little reason to buy and no leadership out of any sector so why go long? Its just as easy to make money on the downside. Just use your stops and trade safe!

Sunday, November 9, 2008

This Week's Trade

Looking forward to another fun week of trading. As of Sunday evening the futures are up 19 ES points which, if it holds, will produce a sizable gap up in the morning. I would guess that we have at least some sort of attempt at a pullback in the morning and from there maybe we can rally higher. We are really at an interesting point on the charts starting out the week. We closed last week just underneath the 20 day MA on the SPX and after the two day selloff we find ourselves right back to about the midpoint of the most recent advance the past two weeks. This is a retracement level that should be watched for a market rally. If last Friday's move holds we can easily this this market rip higher in the short term. I'm still thinking this market will see choppy volatile moves the next few months but for this week I would be bullish above the 960 level.

Very light week on economic data with Thursday seeing Initial Claims and trade balance and treasury budget. Friday we will see Retail Sales, Business Inventories, and Michigan Sentiment. Earnings are winding down but this week the big one to watch for will be WMT on Thursday before the open.

The VIX came up to its 20 day MA last week and failed almost perfectly to make what looks like a lower high. This is a good sign and probably will lead to lower options prices the next few weeks but I do not think we are going below 40 for some time still.

Buy the Dips in these names: AAPL, HBAN, EBS, APOL, KR, NDN, UUP, AMGN, DAL

Sell the Rips in these names: FXE, AEM, LEN, MFC, TS, TM, RKT, USO, MTZ

Other than that I dont really have many more thoughts. It should be easier to see if the market wants to stay above 960 and rally after Mondays session. Whatever happens dont get too excited because we are still in a bear market and rallies are made to be sold, but nonetheless we could see a decent sized pop in the coming days so why not take advantage of the long side while its here.

Friday, November 7, 2008

Waiting Is The Hardest Part

The market was watching and waiting this morning as Oct jobs data was being released and to me it was almost like this market was ready to rally but just wanted to make sure the amount of jobs lost was not a worst case senario (like over 300k jobs lost). We sold off sharply the last two days EXPECTING a bad number to be released today and we got one. The economy lost 240k jobs in Oct, the Sept number was revised up to 284k from 159k, and the Oct unemployment rate moved up to 6.5% (highest since March 1994!). Yikes. So why in the world did we rally 250 pts in the face of this nasty news? I heard of someone still yacking today about how the Obama caused the selloff the last two days. Unreal how people think markets work. This is simply not the case because "the market"--which is simply a collection of all aggregate supply/demand and its behavior that it produces--prices in future expectations way before the Average Joe even thinks of them.

Anyway, it was a productive day overall I would have to say on the major averages. I was expecting at the least a small bounce off the 900 level from yesterday and we actually ripped into the close to finish the day at the highs, roughly 930 on the SPX. Not a bad way to go into a weekend. Honestly cant remember we finished a Friday at the highs of the day. That being said I would not be surprised to see a continuation into early next week, but will go into detail on that more Sunday night.

Barack Obama gave his first public press conference since the election today, during market hours, and actually the markets rallied afterward. Maybe this is a new trend we can look forward to, lol, instead of looking for selling every time Bush and Bernanke come on tv to speak. I gotta say, regardless of your political preference, Mr. Obama does seem to inspire confidence in people and thus the markets when he talks. Even myself I feel encouraged to see this new sort of energy in the air that he has created. It is pretty neat and something we have not seen out of DC in a while. No matter if youre black, white, blue or purple you are firstly an American and we together all are trying to accomplish reasonably similar objectives, just with different paths of getting there. That being said he is our new leader come January 20th, like it or not, and we should be open-minded and support his plans as they are put into action.

Don't want to get too political here but wanted to share what was on my mind. So have a great weekend and we will see what the markets do next week but remember the waiting is part of the game :)

Thursday, November 6, 2008

Take The Money and Run

So this is it we are in a trading range and it has played out well the last several weeks just as I predicted last month. Another big selloff in the market on Thursday which ended near the low 900s. After a 10% down move in two days, on relatively light volume by the way, I gotta start to look for some kind of stabilization in the markets going into Friday or at least next week. Friday is a wild card however because we have the dreaded jobs report due out pre-market. My opinion is that the market has priced a terrible number the last few days so if we get anything reasonably close to the expected 200k jobs lost in Oct then we could actually rally into the weekend. I'm not too sure we see a number like that though. If we get more like 275-300k jobs lost then watch out for a nasty day Friday where we could even get down to the 880 level or lower. But like I said we are down 10% in two days, markets snap back to their averages and we are a bit overextended in the short term so a small bounce or even rally could transpire.

Bottom line is we are stuck in a range for the foreseeable future (850-1000 on SPX). The way to play a range is to buy when we hit the floor (keeping a tight stop underneath) and selling when we hit the ceiling (keeping a tight stop above). When the market gives you the money, take the money and run as Mr. Steve Miller once said. Don't get greedy, don't get fearful; because the market doesn't care about what you want, so you will lose your shirt if you play this market, or any market for that matter, with your emotions. So don't! And of course always obey your stops traders.

Sold SDS

Just wanted to update you on my SDS call options. Market is down sharply again today so I have just taken my Nov SDS 80 calls off the table for a 181% profit in two days. Now thats what I call fast money. I do think the market could fall further and perhaps even as far as the 880 level. But when the market gives you almost a triple of your money in two days, I have learned it is sooo prudent to take something, if not everything, off the table. Other choices I could have made with this trade would be to take half off the table and put a trailing stop on the other half or manually continue to move up a tight stop so I am locking in profits along the way. The SDS is a great way to play the market to the downside and the options are sure a trip. Since Tuesday the SDS is up about 18% and the Nov 80 calls I bought are up 181%. Now tell me this, why are you not trading options yet? Get in the game. Trade safe out there.

Wednesday, November 5, 2008

Hit With Change

I was expecting the SPX to fail near the 1000 level yesterday and start to pullback. It did. The action on Monday and Tuesday was on pathetic volume and not inspiring to me despite what the bobbleheads on tv may have said. I bought some SDS calls Tues before the close, which by definition is a short position on the SnP's, just on a ultra inverse etf. Not quite sold on these ultras in regards to trading options on them. But thats a topic for another day. The end of the day action on Tuesday told me that the market was running out of steam from when it started to rally a week ago. The volume was lacking and so when the big boys are not participating in a gap up rally, neither should you. I will be holding this short position into Thursday even with it being up nicely already as I am expecting a multi day selloff.

This morning the market made a lower high on the 30 min chart and that was confirmation imo that we were heading lower. Today's action was exaccerbated by the bearish ADP employment figures released and it appears that today the market priced in an equally dismal payroll number on Friday. As soon as the downtrend was confirmed on my longer term minute charts, every bounce back to key moving averages was an excellent opportunity to sell with nicely defined risk/rewards.

Contrary to popular belief (Yes I'm talking to you Dennis Kneale), the market did not go down today BECAUSE we have a new Democrat in office come January. The market already knew this would occur and thus priced it in, like markets tend to do. The market was down today because of the fear of massive job losses being reported on Friday and unemployment is by far the most important indicator to gauge the depths of a recession. When people dont have jobs, they dont pay there bills, they dont make discretionary purchases, they dont invest, they do not put money back into the economy, period.

So anyway, just remember the market is up like 15% in a week or so so we are due for a pullback as most short term indicators are overbought. We are in a trading range and simply hit our heads on the ceiling yesterday, lets just hope the floor holds our weight! I would think 900-920 is a reasonable target to expect on the SPX by week end so dont fall in love with any of these bounces we get the next few days.

Tuesday, November 4, 2008

Election Day

Well its election day and the market looks to be gapping up strong this morning as the ES futures are up 25 pts early on at a session high of 995. I'm not too excited about this move, and you better not be buying into it. I think there is a chance of a short term bounce here if we stay above the 980 level. However, I think we are bound to roll over soon as the resistance above at 1000-1020 and 1040ish is just too much for this market to absorb this fast. I could be wrong but I think the probability that you start to watch for downside swing plays are more favorable at this point. If we fail at resistance then the next sign of weakness would be a break beneath 958.

I think the market has priced in a Obama victory and regardless of who does win I do not think it will have much of an effect on the market. I'm sure some of the nuts on CNBC will find a way to argue this allll the live long day today but I don't really care. Also it should be interesting to see who gets Hank Paulsen's job come the new administration. Anywho, I'm kinda excited to stop hearing all the campaigning and slander on the political trail.

Overall, if the market sustains any rally today and closes above its opening level then we may have some follow thru coming but if not then I would be cautious on any new long swing trades. Looks like today I would say our futures trading should be biased to the upside and obey those stops traders!

Sunday, November 2, 2008

This Week's Trade

There should be no shortage of news this week with a Presidential election on tap, the ECB and other world central banks expected to cut interest rates, a crucial jobs report and who knows what else. The market starts off with a rather constructive week just completed. Looking at the chart Friday was the first consecutive daily close above the downtrending 20 day moving average since late August! Not that it means a whole lot since it was on relatively average volume and choppy trade but hey its something. The 20 day ma now sits around 945 and I believe this area will be a key pivot point for the markets in the coming week. If we can hold above this area then we got a decent shot at rallying further. Underneath 945ish and its a different story.

Now it will be interesting to see how the market trades after the election we have on Tuesday. Not saying someone has been propping up this market but it is fascinating how the market seemed to calm down (relatively speaking) during the week before the election. It does look like the VIX has been in a topping pattern since it made its high of 89 six sessions ago. The VIX was finally able to close a week below the 20 day ma and 60 level as well. This is a very good thing for the equity markets as it shows that fear is subsiding. If we can see the VIX come back down a bit further into the 40 area then I would be much more willing to go long volatility and buy options as I still think volatility will remain high, but more subdued, going into year end. The market definitely looks a lot more bullish than it has in awhile imo. This can set us up for a continued little rally here to play with the upside in our trading. The main obstacle technically speaking will be the 1000-1020 resistance area on the SPX.

Economic data coming out this week includes Monday's Construction Spending, and ISM Index. Tuesday features Factory orders in the morning, then Auto Sales being released at random times throughout the day (always hate this release because its mid-day and you really gotta be aware of this if your trading). Wednesday is ADP employment and ISM services. Thursday watch for initial claims. Finally Friday we have the Oct. jobs report which is sure to be horrific, and some Pending Home Sales.

Earnings are again in focus this week with tons of companies reporting. The only one I care about is CSCO on Wed after the bell. Cisco Systems usually is one of the most anticipated names at earnings time just because the demand they see from customers can foretell so much about the strength and growth of the economy. Not expecting anything great out of the numbers but since expectations are crazy low, you could get a surprise pop in the stock after this on Thursday.

Overall I am cautiously bullish on the market this week if we can hold the previously mentioned 945 level. The bottom line is we have resistance galore to fight thru so each up day should be taken with a grain of salt because we still are in a nasty bear market and thus, DO NOT FALL IN LOVE WITH THE UPSIDE. With that said, there's nothing wrong with scalping the upside if thats where the market tells you it wants to explore.

As for individual names, I would have to say AAPL has held up rather well lately and seems to be the first name to move when we rally. After its earnings gap up a few weeks back, it very calmly came back down and filled the gap and made a beautiful higher low at 90 before busting out over 100 last week. If you can get a pullback in AAPL to around that support of 100ish then its a buy imo. I can see AAPL trading to 125 in a hurry if this market allows. Trade safe this week and obey those stops.