Archive for November, 2009
Worthless Dollar…
Nov 24th
Well, the dollar got pounded Sunday night, and market gaped up big when the market opened Monday morning. I missed this opportunity to profit on this move up, as I didn’t get into a long position on Friday. It seems that the market makers don’t want to give us little guys a chance to profit, so they gap it open causing us to miss the big move. Of course they would like us to jump on board and chase the tape up, but I’m not falling for that old trick.
Tomorrow should be a pause day, but anything can happen… so I’m setting on the sidelines. Since today put in a double top, that kills the head and shoulder formation. So, the next target up is around 112.30-112.50 spy. Notice that where the market gaped open is about where the market closed today. Just pennies in difference.
The only way to play the tape today was to day trade it. It’s not for a swing trader like me. So, I’m now just going to sit and wait for the 112.30-112.50 level to be hit, or for Friday to come. I do believe that they will take it higher to hit that target.
It’s the 50% fib level from the 2007 high to the March, 2009 low. This is the perfect time, as the market will be light on volume all week, as traders go on vacation. Everything is looking good for the bulls right now. We all know that the government has been manipulating this market in a HUGE way since the March low this year. What do they want… to trick the average Joe into buying into this recovery, by giving a false impression that the economy is now good. Of course they use the stock market rally as an indicator to lure in more suckers.
Moving on to another reason to push a little higher…
Looking back at previous news releases, I remember that every time an event was released early… it was good. And, everytime they delayed the news release… it was bad. Since this Thursday is Thanksgiving, and the news scheduled out for release on that day is the “Jobs Number”… when would you release it if it was really bad?
Friday of course. It’s a half day, which means really light volume as all the traders are already gone for the holiday. So, if it was really… really bad news, you could easily support any selling with the money the PPT gets from the government to buy up the market with. Then, the traders would have too wait until Monday to do anymore selling, which would give the government something to spin as positive on Monday to keep the selling from happening on a bigger scale. Many times a rally could even be produced, as they could buy up the market before the open when only the furures are trading… which is lighter volume and easier to manipulate.
But… that’s not what’s happening! No, No… they are moving all the news scheduled for Thursday to Wednesday this week. Now, what does that mean, or imply? Well, if I was going to release the news on a day that still has a lot of traders in the pits, and it’s a full day, not a half day… I would only do it if it’s good news. That way the traders would react and buy up the market on basically the last trading day before the weekend.
That means that it would be the following Monday before all the traders come back, and normal volume returns. Since many of them will take Monday off too, that means that Tuesday December 1st would probably the first big day back with real volume in the market.
That’s a perfect way to close the month of November out positive… in a big way. Of course this is all just speculation on my part, as I try to think like they do. It’s tough for me to do, as I am a real honest person, so thinking like a dirty rotten scoundrel is not in my nature. But, sometimes you have to waller around in the mud to think like a pig… and believe me, those government thugs are pigs!
Anyway, just like I said in my weekend post, I think we will go sideways to up this week, then down next week. I’m waiting patiently for that magic number to be hit… or just for the week to be over. If 112.30-112.50 is hit this Wednesday, or Friday… whenever basically, I will be going short!
Red
Weekend Update…
Nov 22nd
I’ll start off by saying that next week should be a boring week, and preferably skipped or simply not played all together. It’s a holiday week with Thanksgiving right smack dab in the middle of the week… on a Thursday no less. Instead of falling on a weekend date, where the trading wouldn’t be too overly light, it’s going to cause very light volume throughout the whole week.
So, what do we know about light volume? It usually means an UP day… that’s what. I don’t think that any of the news out next week is “market moving”, meaning something that traders wait for before going long or short. Couple that with the sell off we just had over the last few days, and you have the making of an UP week.
I believe the whole week will chop around going nowhere. There is now some serious resistance up around the 1100 area. You still have the “Great Wall of China” between 109.68 and 110.34 (spy) that still hasn’t been “confirmed” as being pierced through. Remember, we jumped over the entire area by a gap open on the 16th this week.
That was exactly what I said must happen if the bulls wanted to go higher to capture the 1108 spx level… which they did! But, gaping over the area of great resistance means that the resistance is still very much intact, as they haven’t went through it to break it down… so too say. Going over it is basically cheating.
So, now that you have been caught, you are now back where you started from… under the great wall of China. To show you how important this level now is, I want you to take a look at the chart below. Notice that we now have a downward sloping trend line to cross, as well as the 50% fib level at 1121.44. There is also the fact that we have now officially closed the gap from October 2008. The only thing left to do is rally to 1121.44 for the exact 50% fib level to be reached. However, that isn’t required or necessary, as the 1113.69 high last week is technically “close enough” to be considered the 50% fib level.
So the big question is… what is going to happen next week? Well, I think that the light volume will allow the market to go back up and form a right shoulder as shown on the chart below. Remember, the light volume in the holiday week coming up is one of the reasons that should allow this to happen.
Keep in mind that a choppy/sideways market is great for day traders, but horrible for short term option swing traders. So, how do you play this market next week… if you decide to play it at all? Some of you might want to wait until after next week is over, and get on board the short side the following week… as I expect it to be down hard.
However, if you still want to play it then here is how I plan to do it. I’m looking to purchase deep in the money calls on Monday, once I see that the selling has stopped and the market looks like it is forming a base. I’m expecting Monday to be an UP day, so buying at the open is the idea. Of course, if the futures are down hard in the morning before the open then I’ll wait and re-think the position. But, I really don’t see that happening right now, as there isn’t any news event that can cause more selling before the open on Monday.
Continuing on… The reason for the “deep in the money” call is to avoid the time decay that will occur as the week progress forward. Remember, time is your enemy when buying options, but your friend when selling them. So, a more advanced position to take would be to purchase deep in the money calls and sell at the money calls. This is called a vertical debit call spread. For example…
Buy the FYNLA 105 SPY call option for $5.50 (ask price on Friday’s close), and sell the FYNLF 110 SPY call option for $1.92 (bid price on Friday’s close). Your cost to do this is the difference between the 2 prices, or $3.58 per option.
Since the closing price of the spy on Friday was 109.43 the 110 call would have 57 cents of actual value in it, and the remaining $1.35 ($1.92-$0.57) is a combination of time and volatility. The VIX, which measures the volatility, is currently pretty low (when compared to the high last year). So, most of that amount is time value. Regardless, the bottom line is this….
Of the entire price of $1.92, only 29.6875% is actual value (57 cents). That means that if the stock didn’t move for the entire week the remaining $1.35 in time and volatility value would slowly erode away. Since you sold the option instead of buying it, you would be able to benefit from the decay, as the price to buy back the option, and close the position, would be a lot less.
Now, let’s look at the 105 call that you bought. Again, since the closing price of the spy on Friday was 109.43, we simply subract that from the 105 price, and you get $4.43. Since you will be paying $5.50 for the 105 call, the time and volitility value of the option is the remaining amount… which is $1.07.
Now, that means that 80.54% of the value of the option is “real actual value”, and the remain 19.45% is time and volitility value. What does all this mean? It means that as the week progresses forward, and the market goes sideways or slightly up… your option doesn’t lose much value, but the one you sold did! And that’s what you want it to do, so you can buy it back at a cheaper price… and keep the difference of course.
This is really about the safest way I can think of to play a market that is going sideways or slowly up. Time will finally be your friend, not your enemy. Of course if the market goes down, then you will be hurt the most… but that’s the risk we all take.
Red
P.S. Per request… here is the latest Mr. TopNotch video. I haven’t posted any as he hasn’t done one since the 12th. Anyway, here it is again.
Happy Bear…(Friday’s Delayed Post)
Nov 20th
Sorry for the delay last night folks. I was just too tired to post, as I had a really long day. Anyway, I’m now up and feeling good. I see the futures are already down this morning, as I expected. If the past continues then the low of the day today should be in the morning between about 10:30am est and 11:30am.
After that, the volume will die off and the market should float higher the rest of the day. So, if you are short, I’d plan on getting out today around that time frame. If today closes below the low of yesterday, then the new down trend will be confirmed, and the current high should be in until at least a 5% correction in the market takes place.
Whatever the low of today is should complete the first wave down. You can then expect a wave 2 back up to start on Monday of next week. I’m not sure how high it will go, but it shouldn’t take out the current high. It might only last about 2-3 days, then a wave 3 down will occur.
I’ll have too review the news over the weekend to get a better gauge of what is likely to start the wave 3 down. But, Monday’s have usually been up, as they have light volume most of the time. That could be the only up day next week? I’ll know over the weekend.
So, for now, I’m closing out my shorts today and will look for another short entry next week.
Red
Tonight’s Posted Delayed.
Nov 20th
Sorry folks, I’ll been really busy today and got home too late to think. I’ll post something tomorrow morning before the market opens. I’m looking for a flat or down day tomorrow, possibly to the 1085-1087 area.
Red
Does The News Really Matter?
Nov 19th
I honestly don’t know which way the market is going tomorrow? I expected the move up to the 1120 area today, but the negative news on housing, PPI, CPI, and oil didn’t give the market any fuel to rally. Tomorrow the unemployment numbers are out, so maybe it will rally on the false data that the government releases?
There is clearly a bull flag pattern on the daily and 60 minute charts for the SPX. We should break out to the upside to finally hit that target of 112.30-112.50 spy, but the news is what could cause it to fail? People say the the news doesn’t matter, but I disagree.
The new is what moves the market in the direction that the charts forecast it should go. So, if the charts are bullish, then the market will move in that direction once it receives some news that can be viewed as positive. It hasn’t received any news in the last 2 days, that can be interpreted as good.
During this time the market simply goes sideways, not wanting to go down because the charts are still bullish. But, it can’t find the fuel it needs to move up either… hence it moves sideways while it waits for the right news to make a big move up.
Now, here’s the exception to the rule… if the market can’t find what it needs in a reasonable about of time, then it gives up and makes a hard move in the opposite direction, (which is down). I think that tomorrow the jobs numbers will be spun into looking good. It will then give the market the fuel needed to finish the rally up.
This works the opposite way too. When the market really wants to go down, because of a bearish pattern… it will. It just has to wait until some news event can be viewed as negative. Of course everything is negative right now, but a year or two ago it was all positive.
Back then, you had very high expectations on earnings. So, if a company missed by just a little bit, and their chart was bearish… it tanked. Today, the same company with horrible earnings, could be viewed as positive if the chart was bullish. So, if the earnings that were released were only slight negative, and it had a bullish chart, the stock would rally.
In reality, it’s not about beating earnings, or jobs numbers… or any news events. But, it’s about how the market views the news. It will remain in a sideways pattern until it gets the news it wants to hear, so that the bullish (or bearish) pattern can be completed.
So, if you were to ask me if the news mattered… I’d say yes. But, only to the degree that the bullish or bearish patterns want to hear. The news can sometimes cause a pattern to fail. If the news tomorrow and Friday isn’t good enough for the market, then it could simply give up and sell off… only to try to rally back up next week.
Red
