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.

Trying to forecast where the market is going is sometimes like forecasting the weather.  It could rain on Monday or it could be a sunny warm day?  Clouds will be moving in, but could leave quickly.  Huh?  Yeah, that's how I feel about Monday.

On one side... the Bear side, I see that the market is rolling over on the daily, weekly, and monthly charts.  Plus, it hit the lower level of the gap from October, 2008.  That gap stretches from 109.68 (spy) to 110.34.  The market closed Friday almost dead on the lower level at 109.62.

This area is the toughest wall that the Bulls have come up against since the rally began back in March of this year.  Going through that area is almost impossible... that's almost though!

Could it avoid the area all together by jumping over it, with a gap up above it on Monday?  Yes, it could.  That's about the only way I see the market getting to the 1108.30 (SPX) top that it wants to get too.

Going through that area is like walking through a mine field... you're going to get hurt doing it!  Why not just jump over the mine field and avoid all the pain?  That's what I see the market doing if the 60 minute and 15 minute charts play out.

Those 2 charts are still bullish going into Monday.  So, if the Bulls want to get to 1108.30, then they are going to have too gap up big... in my opinion, to reach it.

But, here's the bad news for them... next week brings with it a lot of economic news, which could be a big problem if some of that news is really bad on Monday.  A bullish 60 minute, and 15 chart will be ignored if the news is really bad, and instead the daily and weekly charts will take the lead.   Which means... a big down day!

So, for the Bear case... I'd say that the mega resistance area between 109.68 to 110.34 held up again, and pushed the Bulls back down.  On top of that, the daily, weekly, and monthly charts all support the Bear case.

The close right at the lower level really isn't bullish or bearish, as it gives NO clues to the direction on Monday.  We could be in a narrow range until after OPX?  It's really hard to say, but I will say that a big, and I mean big, move down is coming.

If it doesn't start next week, then the week after opx is almost certainly a down week.  However, my gut tells me that it starts next week.  I just don't think they can pull off another 5 days of doji's, only to close on Friday at 1100.

A pullback should occur next week, which will only be the start of a big move down over the coming weeks to months.  I could easily see the 107 area being hit for gap fill from the 9th.  I'm really leaning toward a couple a big days down, then a rally back up... only because it's OPX and the market makers don't want to lose money by paying call holders, or put holders.  They are basically doing "stop sweeps" to scare out the hobby bulls and bears.

Red

Sometimes following your own forecast is harder to do then writing it.  I find that true this week, as I posted on last weeks' "Weekend Update" that we would probably go up to 1073-1076... and we did.  But, I didn't listen to my gut and follow Scenario ONE or TWO, instead I followed Scenario THREE and went short on Thursday around 1062... only to have to sell that position on Friday for a small loss.

Why didn't I listen to my own forecast?  Who knows?  Maybe because my forecast was based on logic and technical analysis's, and I went short on emotion.  This just go to show you that it's not easy trading... even if you make a correct forecast from time to time.  Your emotion will hinder your success untill you learn to control it.

I must admit that I'm not there yet.  I still let the outside noise in and react to it with emotional trades.  I clearly stated that Scenario THREE was unlikely, but I went short anyway.  Every chart I looked at had us retracing back up to almost 1080 to form a right shoulder, then dropping.  But, in the end, I'm still here to trade another day.  Let's just hope that I learn from this mistake and don't make it again.

Next week...

I'm expecting a few more days up to hover around that 1080 area.  We could see a down in the morning and back up in the afternoon day on Monday.  Then more up on Tuesday, but probably a flat close.  Wednesday through Friday should be more interesting as I expect more bad news to be released.  The difference this week will be that the market will be up against heavy resistance and won't be able to break through on that bad news.

So, I do expect selling to occur, and I'm still inclined to believe that we will hit 998-1000 before option expiration.  It will most likely come fast and hard, and could hit it before the 20th.  If so, you can expect a nice bounce off that level.  If you can keep a close watch on your account you could make some quick money by going long on the first hit of that area.  If could dip as low as 995 intraday, so be cautious... and be quick to jump on.

So, I'm looking to go short on Tuesday around 1080... if it makes it there?  It may do so on Monday as I expect another light volume day, which of course means another UP day.  But, my gut tells me that Monday will dip down early and rise back later.  That will squeeze any bears that went short at Monday's open, and get the rally up into Tuesday.

Ask yourself that question... "What would you do if you were a Market Maker"?  Of course the answer is...  Steal as much money from the dumb public as possible!  But how specifically would you do that?  I think a fake down move to tell the bears that "This is it", only to pull the rug out from under them later in the day with a rally back.

Regardless of how it happens, I'm going to go short again around the 1080 area.  I'm planning on holding these positions until opx if needed.  However, I think we'll hit at least 1020 before opx, and rally back into it.

Here's a little bonus video for you...

Red

OK... so what's the plan for next week?  Well, I was off on my Thursday forecast, as I expected a flat day on Friday and Monday.  I guess you can't be right a 100% of time?  The volume was 325 million on the spy.  That means a down day of course... and what did we have?  I huge down day!  Fortunately, I wasn't in any position... short or long.  So, no harm done I guess.  I hope all of you weren't long either.

Anyway, I'm looking at 3 possible scenarios...

Note:  All charts are from "The Chart Patten Trader".  You can find the link to his site, and his charts on my blog list to the right of this website.  Hopefully he doesn't mine me borrowing his chart.  I just added my thoughts in purple, and the black text with yellow background around them.

One.  We continue on down to the 1020 spx support level and bounce back up from there.  We could just bust on through 1020, as this will be a second major hit at that area.  On the first hit of any support area there is about an 80% chance of a bounce.  Each time it is hit the chance of a bounce lowers.  I'm giving the 1020 area about a 70% chance of a bounce on this attempt.

If we bust on through then the next level of support is 998-1000.  There is an 80% chance of a decent bounce there, and I will be looking to go long at that level.  I'm just not sure if we bust through 1020, as it is also the lower trend line of what could be a "head and shoulders" formation forming, with the left side low at 1020 on the first of the October.

Now, if 1020 holds, then I'm still expecting 1073-1076 area to be about the highest possible retracement level on the way back up.  There is a gap from 12th-13th at about 107.60  to 108.35 (spy).  I believe we will get close to it, but not fill it.  Much like the way the market would gap up in the past, and not fill the gaps on any correction down.  I think we will now start a series of gap downs and not fill the gaps on the retracements back up.  The reverse of what happened from the March lows to the current high of 1102 spx.

I remember how many times I waited for a gap fill to happen on any corrective move down in the past, only to be disappointed when the market stopped just shy of it, and started rallying back up.  The markets likes to tease people... especially those that follow technical analysis.  The old trick... bring in close, then snatch it away from them!

Everyone was looking for 1120 to be the top, and it fell just short of it at 1102.  The same may happen on the way back up.  Many will expect 1080 to be hit, and they will be waiting to go short at that level.  All the more reason not to get back up to that point.

Now,  on to Scenario Two...

This one has us rallying on Monday from the current level.  Which, could also run up to the same level around 1073-1076 spx in a few days.  Notice how that area would break the upper downward sloping channel line on the chart above.  How many times have you seen a channel that gets broken out of... only to fall back in it again?  It's another way the market likes to trick you into going long, and then reversing in the other direction.

Notice also that he has marked a 1,2, and 3 on each move down.  If we mark 4 as the 104.35 to 106.86 move, and 5 as the 106.86 to 103.44, then we have a 5 wave move down.  Is it complete?  That's the real question.  Certainly it could just continue down some more to the 1020 area, which I believe would be the end of wave 5.  Or, it could be complete right here, and start a larger wave 2 back up... which wave 1 being the entire move from 110.31 down to 103.44.

I'm not an elliottwave expert, but I do know that the wave 2 back up should be higher then the top of the smaller wave 4 at 106.86.  Since Monday's are usually light volume days, then a rally seems to have the best chance of happening on that day.  Once started, short covering would come in a push the market back up on Tuesday.  Many people will put their stops at the 104.35 low... which could be easily hit if Monday has light volume.

Then, the 106.86 would also have lots of stops there waiting to be taken out my the market makers.  That could be enough to push us up again to just under the 1080 area.  In the past, there would have been a whole lot of bears that shorted the market, and any short covering rally would have really pushed the market much higher.  However, I believe that many bears missed this correction down.  So, that means that there isn't a whole lot of them in the market to "short squeeze".  Hence the reason that I don't really see us reaching the 1080 level... only close to it.

Withthat being said, I do believe that whatever level we retrace back up to, the bears are going to all pile on and drive this market down in a big wave 3 move.  With this scenario, 1020 won't hold but maybe intraday, and the next level down at 998-1000 will be hit.

This means that Monday is a "wildcard" day, as it could complete a smaller 5 wave move down, or it could just continue the 5th wave until 1020 is hit.  So, how do we play this move... that is the big question?

 OK, if scenario one is what happens, then I will wait for 1020 to be hit, and then go long for the move up to at least 1060 again, but I'm expecting that 1073-1076 area.  I'll just be very cautious at 1060, as it could dump again there?  Any long position should only be deep in the money calls, or spreads, as time value and volility will kill your option value on the way up.

Next, if scenario two is in play, then I'll wait for 1073-1076 to be hit and then go short, looking for 1020 as the first support on the way down and then 998-1000.  I will determine which as we get close to that time period.  So, I play the "wait and see" game.  By far, the safest bet is to wait until the retracement back up to just under 1080 is hit, and then go short expecting 998-1000.  The next safest move is to wait until the 998-1000 level is hit and go long.

As I said early, I'm not an expert in elliottwave.  I believe they have their place, but unfortunately they can't accurately predict the next move... only tell you possible moves.  That's why I focus on major support levels, and volume in the market.  Bounces occur at the support levels, which makes the EW ABC and 12345 wave counts.  Anyway, let's move on to one more possible scenario.

Scenario Three.  We concluded a larger wave one down at 104.35.  It would have been an ABC move down.  Next, we completed a larger wave 2 up at 106.86.  And now we are in the first smaller wave inside the larger wave 3.  This larger wave 3 should conclude at the 998-1000 support level.  It could have 5 smaller waves inside it, which could mean a bounce up on Monday for wave 2 (or A), then down to 1020 for wave 3 (0r straight down to 998-1000 for wave C), back up to about 1040 for wave 4, and then down to 998-1000 for wave 5.

I don't really favor this scenario, as it doesn't give the 1020 much chance of a decent bounce.  If scenario 3 happened, then we are in a larger wave 3, and the 1020 would be right in the middle of a smaller wave 3 (or C), inside a larger wave 3.  Two waves 3's would bypass 1020 like it wasn't even there!  I don't see that happening.

We've fell pretty far in the last week and we are due for more of a bounce then just the 105-106 area that scenario 3 presents us.  I really think we will bounce back to just under 108.  Now, the question is... from where?  That's either at 998-1000 (80% chance of good bounce), 1020 (70% chance of good bounce), or from where we currently are now.

That means that we should be looking to go long a 998-1000 for the best chance of success, and long 1020 for a good chance of success.  And, we should be going short just under the 1080 area for another great chance of success.  Waiting for either of those levels to be hit is the hardest thing to do, as the market loves to fake you out.  Patience is learned, not giving!

Red