Watching Drops in the Market

April, 1999, was the first month ever to gain 1000 Dow points

WATCHING DROPS IN THE MARKET

The ten largest one-day drops of 2007 have averaged 326 points. In 2008 this appears to be averaging closer to 456 points.

If the average one-day drop is 326-350 points, a cyclical downturn may now be averaging just over 600 points. The large one-day drop tends to be more than the entire cyclical downturn.

Whipsaw begins whenever the market begins upward moves of over 100 points. Typically there is a large burst UP, a slight retracement, and then upside that averages 170 points from the lowest downside. The total move UP, after the whipsaw begins is a call bias that can upside 450 points overall.

If the market drops 326+ points, and after it has dropped further, typically up to 600 points, the first buying is now 100 points or more. The first upswing may be hesitant, over a day and half, but then average 170 points.

As the market rises deduct 50% to 60% from the overall rise. (If the market has moved up 150 points, it’s 75.) Wherever the Dow is right then is a place to potentially buy a call - between bid/ask.

Ex: After a drop, the market is at 13,820. It rises 150 points. 13,820+150=13,970. When the market moves back 75 points (half of the rise), or to 12,895 it’s a good call entry spot.

Assuming the trader buys at 13,890 during this whipsaw period we would add the first day of the initial drop (the 326 to 350 point moves) and 170, where the upswing average.

Ex: We are buying at 13,890. 326 +170 = 496 points. Using averages we’re then suggesting the top of the market might now be 14,386.

This same formula is what we’re now studying with all large market moves. It’s used in conjunction with support and resistance and ATR. ATR, on large swing days, should be recalculated intraday.

From an Advanced Mentoring client:

"Floyd,

Your commentary in the OEX alert was well overdue. Thank you for finally saying something....and saying it loud and clear. I got so tired of dealing with many of the OEX subscribers that I talked with via IM (along with others that we both know) blaming you instead of taking responsibility for their trades. And now you are on a streak of 19 of the last 20, and where are these guys? Still churning and wishing they had stuck it out!

Taking responsibility has been key along with learning. REALLY taking the time to LEARN has been key and has changed everything for me. Finally fun again. BTW, great profits on the puts!

Thanks," - S

Yesterday the market bottomed at 12,616, and may have an additional 100 points of downturn. Whipsaw and "bets" historically now trade the market in advance of next week's FOMC meeting.

We took first entry to the May630C at 14.70 first buy. We'll not continue to trade the put and will issue an intraday alert if conditions change.