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Posted by Martin March 26, 2015
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Market 3% off of the top. Is more selling coming?


The stock market fell by 3% since all-time high in February. Is more selling coming or are we going up again? Unfortunately, I think the uptrend is broken already and we will see more selling. Although tomorrow we may see a bounce from the oversold territory it looks like that the bounce will be sold off again.

This is a typical behavior of a market phase called distribution. And we should be careful about this because it means that the big players are selling their positions. Retail investors typically unaware of this phase are buying stocks while the big players are selling to them. The distribution phase may take a long time. In 2007 – 2008 this distribution phase took almost the whole year before the market crashed while everybody was optimistic and happy about the market and economy.

Although these days nobody seems to be happy about the economy it doesn’t mean that we are still safe and in an uptrend and that we haven’t already entered into a distribution phase. We may already be in one and yet not knowing about it. A good way to find whether we are in a distribution phase is to realize that the market struggles to make new highs and if it does it, it is heavily sold off immediately.

Sounds familiar? If you look at the market in the recent months, we have moved basically nowhere and all new highs were heavily sold off. A few days ago, we didn’t even make a new high and yet that spike was sold off too. If this continues, we are clearly in the topping pattern and thus we should expect more selling or even a major correction.

If we see a correction of 10% or even 15% then it will actually be a good thing for this bull market and we may see a continuation in the trend. If a deeper than 15% correction is about to hit us, then a bear market will come. But that is still too early to say where we are and what will happen.

What is my expectation for tomorrow?

Yesterday, I expected a bounce. But it didn’t happen and the market continued in selling. Later in the afternoon, we saw a small recovery when the market recovered from 2045 up to 2067. By the end of the session we dropped back and closed at 2056.

I think this weakness will continue tomorrow and in coming days. Since the market is oversold we may see a bounce tomorrow. I expect it to go all the way up to 2070. But then I expect it to be sold off again. If however we will see the market breaking up thru the 2070 level, we may actually go up to 2115 level. Which I believe will be sold off too.

SPX expected move

This potential bounce is better seen from the following chart:

SPX trend

As you can see we broke below the trend and other supports (again) and the potential bounce would have two possible outcomes:

1) We bounce up to 2070
2) Or we break thru it back into the channel, which may be a good thing for this market.

Given the weakness of the market, I do not expect it to break up into the channel and if so, it will be sold off.

SPX trend

Two days ago I received a sell signal. That helped to reverse all our trades into bearish ones. If we get a bounce tomorrow, I do not expect a buy signal to occur yet. Thus I think that such bounce will be only a small bump up before a renewed selling comes back. If however a buy signal fires up, we will know that the market is bound for more upside.

Tomorrow, a GDP report comes out. There are two possible outcomes of it:

1) The report will be good – and investors will panic again out of a fear that FED may change its mind and raise rates earlier.
2) The report will be bad – and investors will panic too out of a fear that our economy is bad.

I would be surprised if the clowns on Wall Street would react positively, but it may happen.

We do not have any trades (except one of my bear call spread) expiring tomorrow and since next week I will be traveling, I will be taking off from my trading for the next week.

So be alert and happy trading!
 

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Posted by Martin March 24, 2015
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Market weak but a bounce may happen tomorrow


The stock market is weak and every move higher is immediately sold. Today we created a lower high which is a significant signal of a trend reversal.

Tomorrow we may see a bounce up higher – I expect the market to bounce up to 2107 level, but then we may see a renewed selling pressure. The market may then fall all the way down to 2050 level before it bounces up again. The renewed selling may happen on Thursday and Friday or next week.

If we bounce tomorrow up, I will take this as an opportunity to unload some of my bullish trades which are currently endangered by the market selling.

Here is my expectation for tomorrow:

SPX expected move

As you can see today, the market smashed through all supports and stopped at the lower support of the channel. This put the market into an oversold territory and we may bounce back up to the previous day high which was at 2107 level.

If that happens, then we will be unloading our short term bullish trades, mainly our bull put spread against SPX 2095/2100 even though it will be at a loss.

What if the market won’t bounce tomorrow and will continue in a downtrend?

In that case I will be reversing the trend into a bearish debit spread. This reversal will most likely be a losing trade. But it will be a lot smaller loss than if we just plainly closed the trade now.

Or another option would be reversing the trade into a call spread. This will all depend on tomorrow’s price action.

What is the short term outlook? Here is a chart showing that the market clearly lost the momentum and is once again in a selling mode which will most likely continue:

SPX trend

As you can see, I asked a question whether we bounce or continue higher. Yesterday, it still was unlikely that we would bounce. Today it is clear that we did. This is a potentially dangerous game changer. If we continue lower, then we created a lower high and that may cause the market changing into a distribution phase.

Here is yet another view on the short term trend showing a first alert of a short term trend reversal. Note that this is a short term trend (1 year, daily market). Long term, this bull market is still intact.

SPX trend

We will be watching this trend very carefully and send a newsletter to our subscribers what we are going to do with our open trades tomorrow or in coming days.

Happy Trading!
 




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Posted by Martin March 22, 2015
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SPX trend expectation for the next week


Last week trading was within my expectations. Thursday trading was a small pullback based on the previous strong rally. That small pullback had a small impact on my trades, but nothing too dramatic and nothing hard to handle, although my profits weren’t as expected thanks to necessary adjustment.

In my quest to assess where the market would go next I am posting my expectation for the next week.

The market is still in a full swing up to higher levels. No matter what zig-zag we may see during the week, the trend is still intact and strong up.

The chart below indicates my overall view for the next week to the next month:

SPX trend

The last candle indicate a strong push up. We may see a small retreat again tomorrow, but overall the trend is still up approaching 2120 resistance. Will we break that resistance or will it push the market lower? Although we may see some choppiness around this level, overall I believe the market will be able to break this level and at least in the next two weeks we will see a strong rally up.

Why I think this rally will continue up? Look at the chart below. This clearly indicates that we are in the middle of an upswing. Both the price chart is uninterrupted in an upswing and MACD just performed a bullish crossover. Even if the crossover and move of the MACD will be miniscule it will still provide a few days of strong move up before we may see a reversal.

SPX trend

Unless something fundamental changes the market, such as very bad data from the technical perspective, there is nothing what would change this trend. Fundamentally, we have a few events being reported next week such as CPI index, jobless claims, and GDP report which may move the market. However, last reports didn’t move markets that much and even if the reports come out weak, the investors will most likely see it as affirmation of FED not raising the rates and that would move the markets up even more (if we assume the same ridicule behavior of last when bad news are good news).

Below is my expectation for Monday. I left my Friday projection on to see how accurate it was. Well, I expected the market to go higher, yet my expectation of the move was totally off. We rallied premarket very strong and then the entire trending was sideways with a small sell off at the end. We still finished Friday up.

SPX expected move

For tomorrow I expect the markets to be somewhat weak (based on MACD expected move) and at the end of the day we may rally again. Also we may see the entire Monday down a bit and resumed rally on Tuesday. It depends on how the MACD swing would look like. Most likely we will return back to the trend line, but may stay in its upper portion.

Let’s see how accurate this would be.

Happy trading!
 




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Posted by Martin March 19, 2015
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Thursday pullback drama and outlook for tomorrow, Friday, March 20


For me, Thursday was a disappointment. I expected the market to gain some momentum after Wednesday’s rally like we saw in the past in similar situations after FED uplifting reports. Today, it didn’t happen and the whole day we were drifting down after morning large sell off.

This price action had an impact to a few trades I opened yesterday with today’s expiration and which I had to roll to keep them safe.

I had a bull put spread 2080/2085 against SPX which I moved lower to 2070/2075 when the stock market fell down to 2085 level and it looked like it would continue even lower. Later during the day the market moved higher, so at the end I didn’t have to roll this trade. But at that moment it didn’t look like that at all.

The second trade against SPX was a bull call spread 2090/2095 expecting the market to end above 2095. It didn’t happen either, so I had to roll this trade up and into a bear call spread at 2100/2105. That gave me some cushion and safety, but honestly, the rest of the day I was nervous fearing that the market would suddenly spike up and above 2100 and I would be toast.

So it wasn’t an easy trade for me at all.

Fortunately, both trades expired worthless today bringing a small profit. Unfortunately, those expected profits I hoped for yesterday vanished. But I finished positive and not with a loss.

Now, I only have one trade expiring tomorrow and that is a bull put spread against AAPL 125/120. So far, this trade is safe, but if the stock goes down significantly tomorrow I may either close this trade or roll it as well. As of now the trade is worth 3 cents, so I may close it commission free tomorrow or let it expire. That would depend on the market action tomorrow.

What is my expectation for tomorrow?

The overall trend is unchanged and we still should be heading up, although today’s price action revealed a lot of weakness in the market. I expect some weakness to continue tomorrow morning, but overall I expect Friday to end higher.

 
SPX expected move
Tomorrow’s expected move

 
SPX trend
Bullish trend UP intact
 

 
SPX channel
Is a new rising channel forming?

There is also a potential that the market shows more weakness and continues back down to 2064 support. If the support won’t hold, then that would have a serious consequence to the overall trend and of course to our trades.
 




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Posted by Martin March 19, 2015
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What’s the Right Minimum Wage?


 

What’s the perfect minimum wage: is it $10 an hour? $15? $20? How about zero? That’s right. Zero. While Congress discusses a minimum wage hike, economist David Henderson shows that any minimum wage makes it harder for unemployed people (particularly young people) to find work and forces business owners to cut the hours of lower-skilled employees.




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Posted by Martin March 19, 2015
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America’s Debt Crisis Explained


America’s national debt stands at $17 trillion. That’s a tough number to grasp. Most people will never come close to making $1 million in any given year. How can we understand the magnitude of the hole our country is in? Well, imagine you owed your credit card company $200,000. On top of that you have to pay them about $4,000 per year in interest. You are bringing in $150,000 per year, but you are spending way more than that. How are you going to ever pay back that $200,000 debt? And what happens if you default? Well, that is America today. The problem is clear. And we brought Michael Tanner, a senior fellow at the Cato Institute, to propose a solution.

 

 




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Posted by Martin March 18, 2015
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FED cleared a path for the market to go higher


The uncertainty has been removed and future is great and bright again. Although it actually is not. But market participants are irrational and many times react the opposite way than any logic or common sense would expect.

In the past few weeks, everybody knew that the US economy is slowing down, that it is not in a good shape, and that many reports are actually showing significant economic decline; (for example housing last week showed a 17% loss). Even the so cheered employment data which showed a better job addition than expected, when looking at them closer, actually showed that they were more bad than good.

It should have been the worsening economic data sending the markets down and not the rates hike anticipation. Clearly, the clowns at Wall Street had it all this backwards. But they were able to spook me enough to stretch my options trading to the very limit.

All those reports showed that increasing interest rates would be foolish and premature, sending the fragile economy to a halt, and possibly into another recession. Even Janet Yellen herself admitted this. Removing the “patient” word from the report doesn’t mean increasing the rates or become impatient. She clearly said that she wanted more employment data improvement, more improvement of inflation, and better growth before setting a date where the FOMC would even start talking about interest rates hike.

And yet investors were heavily selling stocks since the employment data came out at the beginning of March sending the market south.

Now, the sky is clear and clean, new horizons are in front of us, and we may see a new upward move in the market.

At least until the clowns at Wall Street start freaking out again over something else. Or until the next month FOMC meeting takes place with a renewed fear of interest rates hike, or when the investors finally realize that the US economy is in bad shape. Until then we can enjoy a new bullish trend.

SPX expected move

Since now Janet Yellen is “impatient” (what else would they be when they are no longer patient), the clowns are now happy again. I expect them to be buying this market and move it higher into the new all-time highs.

In a few days we may re-test the 2118 – 2120 levels and if we break through those levels, we might go even higher. The next stop would be at 2140 (upper Bollinger Band) where we may stop and bounce down a bit. And even higher stop could be at 2160 level.

It is however, important to go and reach these levels in order to keep this trend bullish. If now the trend stalls and starts turning back down, that would signal a significant trouble to this bull market as we would be witnessing a trend reversal. If we want this trend to continue, we must go up now.

Of course, I am not arguing that this market is healthy. I also think that this is a bubble constantly inflated by FED’s ignorance and that the bubble will pop one day and such pop will be nasty. But I do not want to be sitting on the sidelines waiting for the pop to happen before I get involved in the market. It may still take another 6 to 8 years and in the meantime, the market may still continue higher. I want to ride that wave, but just be ready for the pop and respond to it if and when it happens.

Happy trading!
 




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Posted by Martin March 18, 2015
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FED frenzy


FED announced that the interest rates hike is unlikely although they removed the word “patient” from their report. The market spiked up in seconds. It went from 2061 to 2080 in a few seconds.

SPX

I was able to open a bull call spreads expiring tomorrow and next week for this spike as well as one bull put spread. But I wasn’t fast enough to open it down low. Nevertheless, I expect the market to continue higher tomorrow and in following days.

This frenzy offers a good opportunity to salvage our old trade and make some decent money.




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Posted by Martin March 17, 2015
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Quo vadis FED?


Trying to assess where the market would go now is close to impossible. We have FED coming out with their report and the clowns at Wall Street will take their leaf reading witch craft ability to guess what Janet Yellen meant by keeping or removing a word “patient” from their report. Based on that they will either panic or cheer and the market will either crash or spikes to new all-time highs.

 
Yellen
Credit: www.theaustralian.news.com.au
 

One event can make our open bullish trades profitable, the other can ruin them. With options, a time sensitive instrument, we do not have much space for further positioning ourselves for a possible outcome.

We have a bullish trade – a bull put spread against SPX with expiration at the end of the month. If the market tumbles we may not have enough time to recover and not enough margin to roll. And even if we had margin to roll, I am no longer willing to use cash to protect this trade and its profits. I am leaning to steps which would get us out with minimum or no loss at this point.

However, we still can profit with this trade. If the market cheers the FED, we will stay the course, do nothing, and take our profits. If we tumble, we have to act and adjust our trade.

The easiest way to adjust the trade would be to reverse it into a debit trade. That would look like this:

We have:

-3 SPX Mar5 2015 2100 puts
+3 SPX Mar5 2015 2095 puts

We would have to perform the following trade adjustment: buy back the short options and sell new with lower strike:

+3 SPX Mar5 2015 2100 puts
-3 SPX Mar5 2015 2090 puts

After the adjustment, we will have the following trade:

+3 SPX Mar5 2015 2095 puts
-3 SPX Mar5 2015 2090 puts

For this adjustment we will pay a debit (currently 5.50 per spread, or 1,650 total for the entire trade). The profit is the spread width or $1,500. Normally this trade would result in a loss, but we have to add previously received credits. And with the previously received credits our cost for this trade would be 1,365. Thus the profit would be 1,500 spread width minus 1,365 cost = $135 total gain. Since this trade will be exercised, the cost for exercise is quite high, so I estimate the remaining profit would be only around $40.

Not bad prospect for this disastrous trade. Let’s see what the trading would look like tomorrow. If the market goes higher, it would improve our potential reversal of this trade in case the stock market crashes on Thursday morning. If it goes lower tomorrow, our reversal cost may become worse and we will end up with a loss. But the loss may be small compared to a total loss which would occur otherwise.

Good luck on trading and let’s hope the FED won’t spook the investors into a sell off.
 




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Posted by Martin March 16, 2015
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Quo vadis SPX?


It is extremely difficult to position a trade in this volatile market. Last week we saw the market holding both key levels – a 2064 resistance and 2040 support. After three weeks of losses in the market it wasn’t clear at all which direction the market wants to go. Would it be up or down? More selling appeared to be imminent.

But today, the market posted yet another big run up and smashed thru the 50 day MA running closer to its next resistance at 2093. Will this resistance hold the market from more upside move or will it smash thru?

And what about FED and its meeting tomorrow? Will they spook the investors into selling when they publish their meeting notes on Wednesday? Or will they pour more optimism to the market and investors would buy everything for whatever price?

Next few days will answer those questions and we will also see how our trades are doing. Should we stay the course or unwind some positions?

Here is my expectation for tomorrow. Let’s see if the market goes that way or not.

SPX expected move

Happy trading!




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