The Intellect of Our Market

At times it's amusing to watch the intellect of our market as it follows support and resistance lines. Bulls do not want to give up the fight, and bears have shown every technical indicator for more downside.

The morning opened with durable goods up, and a jobless rate down that assumes firings are over. This lifted the market just enough for traders to gain entry to the OXBRB June410P, as low as 7.00 and far below prior day close, and sell to highs of 10.10 within one hour. The day showed tops and bottoms that you should carefully review against the Dow projections.

Trader IAG explains:

"Floyd,

Futures were tight and I put an order in at 7.40 on the 410 pre market and just waited. It filled at opening. I put an order in to sell at 9.90 and it sold by 10.30. By the way, this was over 6k of profit in an hour, and I was simply stunned.

I've been doing well with this, after the larger February loss I had when I broke your rules. I re-calculated the Dow early and simply saw I had traded r1 buy to an s1 sell.

I am controlling my emotions even more now."

And this from a long term subscriber who was just fired:

"Hi Floyd,

Well, I have just recently joined the ranks of the unemployed for the first time in my 59 years of life..I am now a statistic as a result of the economy.

Notwithstanding this fact, I do believe when one door closes another will soon be opened, and I will be diligently preparing for this eventuality.

Nevertheless, due to a series of events over the past couple of years my finances have been somewhat under pressure, and combined with this most recent event my budget dictates that I discontinue my subscription to your excellent service...at least temporarily. It is with deep regret that I request that you stop my subscription at the end of this current cycle.

I want to take this opportunity to thank you for making your work available to others so that others' lives can be made better. I have certainly benefited from your service and I will look forward to the time when I can renew my membership."

This subscriber is staying with us gratis for 90 days, and I printed his comments because it is critical that subscribers recognize that much of the teaching of to "think about life", or "read the market" that you read in this commentary is critically important to how you think about yourself as you trade. Be sure and truly explore ALL the areas of our website. You'll be surprised how much there is for you there.

Remember, every one of us is always in a crisis, coming out of a crisis, or headed for a crisis. This was a very important sentence yesterday. This affects your trading. We teach you how to think outside of the "circles" that you create.

Let's Start With Grandpa

Let's start with Grandpa. If you remember, I ended the commentary yesterday with the story about the lady with the suicide in the family. The "mental illness" stigma that has surrounded her family from this suicide, and how it has affected her, long in to her adult life, are prime examples of FALSE FACTS and how they can influence behavior, and in our case, the market.

This woman recently found out the true fact: that her great grandfather had a stroke, at 59 ( a ripe old age at that time) and killed himself to not be a burden to the family. The son, her Grandfather, had been an young adult member of the family that dealt with this in the mid 1850's. The fact is that there WAS NO STIGMA. No emotional problems, no deep seated schizophrenia, and this family was able to build into their family drama that "Great Gramps" had committed suicide.

All of us have this in our families, in our lives, and our emotions in trading are "emoted" by the crisis we are currently in, where in the cycle, and how we are handling it.

Remember, every one of us is always in a crisis, coming out of a crisis, or headed for a crisis.

The lady with the illness that permeated and stigmatized her family for years must have been affected in some way by this "false fact," and that she could somehow be "affected."

Think of how, and what, not why, as you trade. Why is not a good question.

Traders were rewarded yesterday with profits on both puts that had been recommended. The June 420P, for example, was available for as low as 8.80, below prior day close, and sold to highs of 12.30 by 2.30 p.m! The June 385P, on two buys, was also profitable, leaving us winning three for three so far this week, and staying close within our Dow projections.

You've Made Me a Trader

Memorial Day week the Dow is down 7 of the last 12, and up 12 straight from 1984 to 1995.

We saw "perfect" trading yesterday. Trader MCE said it best:

"1. I placed a limit order on OXBFD, the recommended call, today pre-market at 9.20 or less, and it filled at opening at 8.40.

2. I made some coffee and recalculated the Dow, and compared them to your projections overall.

3. I put the sell order in at 13.40, your top, thinking it would be right near r2, and it filled. Floyd, I had 10 contracts, and made a quick $5000.00, enough to pay for Level 3 for the year, and have money left.

4. Next I bought the put at r2, which was 2.30, for the OEWRQ June385Put. I made just one buy. You and I also emailed and you told me I could have also bought OXBRD The June 420P instead. Part of learning the count calculations has helped me understand the "mixed signals" and how a top could occur. I could not have said this 4 months ago, and would have thought that all the reasons the market went up today was because of certain news, when in fact it just triggered what was already going to happen, with your Dow projections.

You've made me a trader"

________________"


Here's Floydian logic on support and resistance:

1. It is perceived as important by the trader, and the floor, so it is important.

2. The longer the time frame (time spent at the support or resistance line), the more significant it is.

3. What is support may become resistance, and vice versa.

4. S/R defines price or action zones, not the exact price to buy/sell, but a "range"

5. Use of Open/High/Low/Close as indicators is more accurate than the "swing" areas around support and resistance. Study prior day facts, or recalculate once during the trading day.

6. Watch the market breathe. Sit back and simply note where the market moves, around support and resistance

Trader MCE simply followed the rules for his profitable return, and did not let "too much evidence accumulate"

And lastly, a bit of Floydian Therapy: http://www.oexoptions.com/pages/FloydianTherapy.html

A client shared with me that her Grandfather's Father had committed suicide many years ago. The Grandfather saw it. This affected the Grandfather and helped make him the volatile and angry man he was.

The Grandfather told his daughters about his father's suicide, and they in turn told their children. An entire "mental illness" was created from the Grandfather's suicide. Many members of this family for years have believed that much mental illness "runs in the family."

I'll ask you as traders: How does this affect a trader that I am working with, and her thinking? With what she knows, as an adult, does this information (the dark past of all families) affect her trading? Or could it?

Let me know your thoughts. I'll blog them in and "tell you the rest of this story" as the week progresses

Understanding your emotions is more important than the signal, as it is "being outside of yourself" to trade that makes you effective.

You Do Not Become a Doctor in a Few Weeks

Friday was a classic day for profits. Here's a perfect testimonial from JE on how he traded:

Floyd. 6 months into level 3 and I am really getting it.

Here's what I did Friday:

1. I watched futures, which moved around a lot, and waited until 10.30 and recalculated the Dow. I then bought 20 contracts of the June 420 Call at 9.30.

2. I studied the new Dow recalculations, watched the option, and within three hours the call hit r1, when I sold at 11.10. The option went up to 11.20 for the day, but I profited, net of commissions, $3600.00.

What stood out to me is that I was calm, and simply bought s1, sold at r1 when I saw the market was holding right around the 8350 Dow projection line you had and the 8250 also.

This trader took emotions out, and followed simple rules. He bought at "best buy" (or discount near a retracement) and sold for good profits, to close out by before the holiday weekend.

Another trader, MDL, wrote:

"Thanks for the two weeks of Dow projections with your regular daily updates written within, it helped me see just how to use these projections to see where the market will go, and it's a blast to listen to the "talking heads" explain the "reason" after, when it's just what you call "normal market cycling."

Learning to trade options is a serious skill. I always smile when subscribers share with me that "it's hard" to "learn", and it is, as where else can you earn 20 to 35% without leaving your desk, and with a controlled risk.

And, even better news, traders were able to take nice day trade profits on the June 385 Put also on Friday as the market gapped down at the end of day, and in tight whipsaw throughout the day.

Trading over 30 years I am still amazed when someone tells me they've been paper trading a few weeks and it's not working:) It takes time to truly learn how to trade index options, and is a learned skill.

You do not become a Dr. in a few weeks :)

Traders: if you have questions don't hesitate to email Floyd personally at any time at info@oexoptions.com

Consumer Confidence comes out at 10 a.m., and is an indicator that will be "read" for the mood of the public with more scrutiny right now.

One in every two entrepreneurs has dyslexia. Society viewed dyslexia for years as a "motor coordination" issue and a form of retardation, all the time while businesses were being built by dyslexics.

Things are NOT as they appear.

Presumptions

The Friday before Memorial Day tends to be lackluster with light trading. There is also typically a bit of rally thinking as the market closes down for the holiday.

The market is closed on Monday, and our next alert will be sent Monday in advance of 5/26 opening.

What occurred on 5/21 added to our Dow projections for more downturn, as while the Dow went beyond its 5/8 high, both the OEX and the S&P 500 did not, and that helped lead to the bearish divergence that prompted the downside we expected.

Yesterday, we saw a healthy consolidation, more downside to put a bit of reality out to our happy investors that have seen such run up, and begun to believe it to be well. As we recalculated the Dow after the first hour sell off we saw s1 at 8334.98, and s2 8247.93 By 11.30 a.m. the market had just touched s2. By 2 p.m. it hit s3. Traders that held partials on the OXBRD June420P were rewarded with a 45% rise from prior day close, returning investors over 100% on this put. New signals to the June 385P were available on the gap up and whipsaw as low as 3.40, with sales to 5.00, but most traders didn't enter on this wild swing to start the day, and with futures dramatically down prior to opening, call traders that took entry would have been high risk traders only. All of this occurred as we hit 8207, R3, before rebounding. Just like a clock within our system.


Since 2000 the value of the world stock markets have gone down 37%. Since March ,2009 they've gone up proportionate amounts. Both of these are facts. Both can lead to presumptions.
For example, one could assume in a 9 year period that the markets will again go down 37%, if history repeats itself, or one can assume that the 37% increases over several months in 2009 indicates larger and longer upturn.

This is the same logic as: "If we close Gitmo where will we put these dangerous prisoners?" Hmm, considering Gitmo is 90 miles from the U.S., and on soil with a country we currently are on a ridiculous embargo with, it is illogical to even consider that the U.S. could not find a place to house dangerous prisoners, yet we have some that actually create FEAR in our gullible people, and question our ability.
It is this kind of mis-information in which we often build our facts. I use it as we consider just a week ago as the market analysts were seriously explaining to us the strength of the market.

When you find nothing it means you've eliminated what surrounds the something. Learn to watch the market breathe.

A Story To Help Us Trade

90% of all guns recovered from crime scenes in Mexico come from U.S. gun shops.

VIX on Tuesday closed below 30, the first time since Lehman Brothers collapsed last September. This is meaningful, as VIX tracks the OEX and S &P 500, and tends to rise when stocks fall, and fall when stocks turn up.

A year ago, before the credit crisis was "admitted," VIX floated between 10 and 20, hitting as high as 80 in October and November. As the market began to recover this March VIX stayed above 40, suggesting investors weren't convinced the worst was over. The Dow is up 29% since it's low in March, but still down 3.4% in 2009. VIX is confirming that the market appears to be settling. Typically there is reaction to "calming," a more severe consolidation, before supportive upside.

The FEDS midday cut GDP for the 2009 forecast, and raised unemployment numbers, and this triggered sell off. But, we'll tell a bit of a story on this to help us trade:

1. At 10.30 a.m. I ran another Dow pivot point/support and resistance calculation, and noted that the market had gone up beyond the pivot point to the newly calculated R1. I bought at 8.10, and sold hours later for 12.40.

2. From there I saw the market move back to the pivot, and down to S1 where I sold the put for the profits.

3. I promptly rebought the June420P on market upswing, and sold again for 1.00 profits. This means I made 5.30 per contract of profits on this put before 3.30 p.m.

What We Are Told Are Facts Are Usually False

In January 2009 more automobiles were sold in China than in the U.S. In May 2009 President Obama began to put restrictions in to force automakers and the American public to raise emission standards, and force better mileage.

Naturally some autos already achieve these standards, and more naturally many now oppose this as "forced business legislation." Yawn. Whatever it is, when gas is again $4.00 a gallon we better be ready for what it will do the economy NOW, as compared when there was money in our "false euphoria" to pay for it.

Done right, this will re-tool and get cars selling again. And perhaps for once we will begin to see gas consumption standards as a way to moderate our own greed. We do not need to be driving Hummers to the grocery store, pretending to be soldiers, buying our bottled water.

It is obvious that this is a week with little economic data, from the flat lining we've seen, and the discussions on whether Pelosi be impeached, whether the CIA lied, or how the Republican Party can re-group took over more of the newsbites than genocide in Africa, or that up to 940 local anks show potential for a deep hit on commercial property. The WSJ studies show losses could occur up to $100 billion by the end of next year IF the economy's woes deepen.

Couple this with a vastly softened "bank test" that just occurred, and our financial sector is far from renewed, or healthy. Note this as we see the market struggle at key resistance lines , with a top again at 8538 area, and minor whipsaw all day around a flat line. We were able to gain entry to both option recommendations, and some tight profits were available only for traders "catching a moment". We continue to hold the positions.

And the FDIC quietly is weighing a one time fee to replenish its deposit insurance fund that would hit the biggest banks hours.

All is not as it seems. A rock is only hard from the definition we know of the rock, and of hardness. WE do not know what we do not know. And most importantly, what we are told are facts are usually false.

No Bell Curve Bias

42% of unemployed Americans are not eligible to collect unemployment benefits. Interesting if we were able to analyze the true unemployment in American including the homeless and unemployable, as the costs mount for all of us. How deep will the unemployment cycle hit middle business as jobs simply don't become available?

A bit of euphoria came back to the market Monday, in a week with an uneventful economic calendar. Just as we expected, we saw an upturn despite a negative put bias, as the market struggled to return to new support lines at 8550, which it eventually closed at :)

Traders that handle our open Friday signal for the June420C saw it run to highs of 15.10. We projected a high of 16.40 on this option, and consider it profitable twice now from day and one day holds. Futures were advanced pre-market enough to not warrant a put buy, and Bloomberg news was more than upbeat for a market start. It was great profit on calls, available as low as 12.60 in early morning buys.

The reversal of bias will bring us to almost "no bias," a reason to study our Dow projections carefully, which actually repeat last week's accurate forecast. The bulls and bears will fight at this level, and a bottom test to 8050 to 8150 is not unlikely. There is actually NOT that much good in the market.

Higher risk dual signals offered today in a "no bell curve bias." This means our signal buys could be "early" and require larger second buys. Our intuitive bias is a downturn.

Much Depends on What Facts Hit the Market

Puts now have the strength, with a count of 6 bias, and a potential new market bottom. In addition to the economic calendar for the week note the point and figure bullish % chart, as high as 72 and dropping, and the Dow chart that shows each support line (where the O's are) down to 8000.

With the market proving euphoric in its mad rush up it is a natural consolidation we've seen, with market bottoms on Friday of 8190. Our open signal June 420C was profitable during whipsaw on Friday, and available below prior day close. We also continue to hold this, and will list a higher risk fast trade put, dependent upon futures.

Our longer term projections (a week or two) are that the market will short term rally back to 8550, whipsaw down, and perhaps begin a climb back to higher highs. Much depends on what facts hit the markets.

Here's a few:

1. In January 2009 more cars were sold in China than in the U.S.

2. 42% of unemployed Americans are not currently eligible to collect unemployment benefits.

3. 70% of this years college seniors will graduate without having secured a job.

Always think about the economy as "how many dollars flow." When dollars do not "move", or "flow", erratic markets are created.

Remember: do not worry about "what should be." Study "what is."

:): Texas is the 3rd highest amongst all states in teen pregnancy rates; 94% of Texas Public Schools districts teach abstinence as their only form of sex education.

Get Your Ego Out of the Way

It is May option expiry today, and the market was up 5 of the last 7 years.

Shawn Adams once said "The CROWD is always wrong at market turning points, but often times right once a trend has set in. The reason many market fighters go broke is they believe the CROWD is always wrong.

There is nothing further from the truth. Unless volatility is extremely low or very high one should think twice before betting against the CROWD".

At OEX we often play the edges, as we watch the bias build, and when extreme overbought or oversold conditions apply (7 to put or call) or when whipsaw and volatility are taking over the market.

We saw yesterday as a likely "reaction" day to an oversold consolidation, as we were potentially hitting market bottoms, but also saw the potential of a larger downside if FEAR built.

"I measure what's going on. I adapt to it. I try to get my ego out of the way. The market is smarter than I am so I bend."

Martin Zweig, Winning on Wall Street

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I had an interesting dialogue with a new Level 3 subscriber, a Libertarian, who has "evidence" that Obama may not have a legitimate birth certificate, and evidence that he may not indeed be the U.S. citizen that he is.

This gentleman is articulate and could send information that would help "cast reasonable doubt" to any educated American.

From this a lesson can be learned about the market.

1. It is quite unlikely that our President in vetting has a false birth certificate, but even more likely that it will be "investigated," as he has been elected President.

2. It is unlikely anything will be done about it.

Thusly, this is a situation that I see as "what it is, and not what should be". This gent, we'll call him "L", believes a wrong is a wrong, and that this is horrible. He may be right. But, what it is, and it will be this.

I always investigate the odds of "what is" changing to "what should be." There are many times that "what should be" can occur from "what is" when enough people get behind something, and agree to it in principle, and make it right. There are also situations that are "what is is" and it makes no difference in any way what is discussed, as it will not change the situation.

As traders it is critical we do not let "what should be" influence "what is." It is more imperative that we remain suspicious of the market, as the psychological beast that it represents of "the common man," as Wyckoff points out, but more so as we recognize that analysis of financials is not the same as it was 10 years ago, and that stock market movement today is seldom on fundamentals, and that there are fewer fundamentals than we may have known. Citi is a superb example.

The Dow moved to a theoretical high of 8400 before 2.30 p.m. yesterday. Study our Dow projections today, as we're showing a few more s/r lines that could hesitate the market.

My Job is to Be Your Provocateur

In 1954 the stock market first regains its highs from the 1929 crash.

My job is to be your provocateur. Often my commentaries do just that, with either disagreement, endorsement, or questions. The purpose of the commentaries is to introduce the emotions of the market to the facts of the charts, and how both we as traders, and the market at large interpret current conditions.

Yesterday a very upset new Level 3 subscriber wrote me about my "pro Obama" commentary, and within a lengthy dialogue shared with me a vastly conservative perspective (Obama as a citizen of Indonesia, or a Marxist Kenyan). This is an educated subscriber that shared many alternate points of view and believes in neither the Republican or Democratic party. Factually, someone with this thinking votes ineffectually, but for conscience.

How will this affect his trading? His understanding of "black and white" and that there is no black and white?

As your provocateur I want to see what emotions take place within you that could influence your trading.

Conjecture will lead the market, as people think so differently. These are the points of my commentaries, and the Floydian Therapy commentaries are also within our strategy to the market, as our system is based on mechanics, counts, and EMOTIONS.

I see it as my job to "question authority" and to ask you to look at "false facts." This is how you'll be AHEAD of the market, and how in our Blue Chip portfolio we sold off 2/3 of our stock positions profitably last fall at 14,100 and 11,100 on the Dow, and now have a winning portfolio again.

We do not believe what we read. We do not simplify complicated things. As an example, Medicare is indeed in trouble, as is our health care system. These costs are part of our issues. Studying Obama's health care plans I find nothing about nationalization, yet this oversimplification of regulation, control, and support become "nationalization." The money spent in Iraq would have done well for us in the past 8 years with Medicare, as an example, and we follow Roubini and Krugman as economists in our analysis of the real facts about what has happened to our banking system, and WHY.

Right now, despite consolidation, the country is turning optimistic. This may be a false euphoria, but it shows a bit of a "shift" psychologically, and we think part of this is the constant communication from the White House about our situations, after years of "no conversations" and allowing the few to gain wealth, which we now know was falsified. Seeing consolidation this week we think is healthy for a run range of 8250 to 8800 area, in whipsaw.

Two years ago I suggested the REAL unemployment rate was closer to 18%. It is interesting to see how the numbers have climbed during the flash downturn last fall, and more interesting to see how the middle class have responded. Much of our commentary is based on how we read the psychology of the market, and of our citizens.
___

Yesterday we saw the true consolidation we think healthy for the market. Lows of 8222, with a whipsaw struggle for a time, as the market digested bad retail news, and a bit of "oh wait, maybe things..." hit.

This ended the flat lining we've had, and produced a clear bias, that may be at a bottom.

We Can Not Understand What We Do Not Know

94% of Americans say they would not buy a car from a company in bankruptcy. Over 74% of Americans until one year before Bush left office also believed there were WMD in Iraq.

All of this points to what we do not understand. A company in bankruptcy is not bad. It was proven years before Bush was re-elected the second time that there were no WMD in Iraq, but Cheney and "FEAR" propaganda, ongoing to this day, still influences many that "we must allow waterboarding, or we must do this, in order for THIS NOT TO HAPPEN."

Relate this to the stock market. Paulson comes alive just before he leaves office with "the world is ending," and 350 billion is spent without rules or regulation. To some, he averted crisis. To others, he paid off many friends as he bailed out Wall Street.

Obama inherits a giant mud hole that water keeps pouring into. It is impossible to shore the walls, as the water keeps coming (relating to more financial lack of controls data comes to light and things worsen).

Soon, the very people that were spending trillions on Iraq without hesitancy are calling Obama's bail out socialism. No mention is made of the deficit built.

This is not a soapbox on Bush. It is a statement that we do not understand what we do not know, but take information in to our minds in "soundbites" and make emotional decisions.

"The market is turning around and the worst is over."

"We will hit market tops and have a 1000 point sell off, or worse."

"What Obama is spending will haunt our grandchildren."

"We are heading towards a nationalized society."

Now, take these soundbites as the conjecture and false facts that they are and begin to FILTER. Here's an example: A "radical" person has "far left" thinking.

This is far from true. Radical means "from the root of" and a "radical" person could be any "extreme perspective" from the "norm." Einstein was radical. Pasteur was radical.

The fewer the soundbites, and the less you are influenced by "conjecture" the quicker you can overcome the emotional trials of "created drama" as you trade.

______________________

Yesterday we saw futures UP before the market opened, here's the "news" that influenced futures. Let's analyze

Breaking News
•Stocks, Index Futures, Commodities Rise on Spurt in China Factory Spending (Floyd-in euphoric times as these, a positive sign)

•Bank of America Said to Raise $7.3 Billion From China Construction Sale(Floyd-a positive development)

•China's Fixed-Asset Investment Surges 30.5% on Stimulus as Exports Slump (Floyd-actually very bad news, but most will not understand the "bite")

•U.K. Manufacturing Drops Less Than Forecast 0.1%, Slowest Pace in a Year (Floyd-a good sign to a "fact" believer)

•EADS First-Quarter Profit Slumps 40% as A380 Delay Cuts Plane Deliveries (Floyd-bad news....the economy slows deliveries, and could be cutting production, but not "worded" that way in the initial "news bite")

•Steinbrueck Completes `Bad Bank' Plan, Offering Bond Swap for Toxic Assets (Floyd-a shell game move?)

•Bernanke Says U.S. Banks Must Do Own Stress-Tests to Identify Other Risks (Floyd-For your comedic relief. As if the banks will do this without controls)

•Pope Visits Temple Mount to Emphasize Shared Roots as Controversy Persists (Floyd-a bit of religion to help us clear our heads)

•Pakistan Targets Taliban Stronghold in Swat as Fighters Advance on Capital (Floyd-it has just recently been realized that we spent 7 years and trillions of dollars in Iraq, and the Taliban and Al Queda aren't even there! Invite Cheney over to your house so he can explain the danger:))

Newsbites are valuable, using Bloomberg (which provides NO conjecture to influence opinion) to help us understand what might "help" the market move.
Each of these statements have SOME truth. Each also has conjecture, incomplete information, and innuendo.

It is learning to see PAST what appear facts (false facts) that create the successful stock trader.

__________________

Now, the market. We are experiencing the flat line struggle between bull and bear, and the question of 8800 first, or 8200 first. This struggle took place all day yesterday in a 100 point range of trading around the 8450 resistance line. Experienced traders were able to profit two ways, by watching Support and Resistance lines. 8567 highs to 8325 lows, as the market moved to bull/bear flat lining struggle.

We were able to profit .60 per call, and up to 1.30 per put, based on tight buys and sells. However, this is such a tight market, and moves are so slow, that it is difficult to trade around the flat lining.

We Almost Always Think The Worst

Stock markets are up over 50% since the beginning of March. In May alone investors have plowed 4 billion into emerging market investment funds, and the U.S. stock market now doesn't look like a a bargain anymore.

Couple this with stupidity, as an example:

Hybrid vehicle sales have fallen as much as 50% from 1/1 to 4/30, as gas prices fell. Hybrid cars represent only 2% of the entire consumer vehicle market.

Both of these above statements should shock you:

1. 50% increases in 60 days? Are things better?

2. Hybrid sales down while GM plans its first 44k Hybrid, due out in 2010?

Perhaps we need to have a "stupid tax".....for all those that really act stupid (vote for Bush twice, buy Hummers, drink plastic bottled water, support Rush Limbaugh) they would have to pay twice the taxes? Perhaps we'd shut them up a bit?

An interesting perspective on our own human fragility, and how emotions enter a trade is key here:

1. We almost always think the worst.

Ex: My dog, Lacey, who I love more than my wife, has a "large lump" that is in biosopy, and may be "of real concern," said the vet Friday.

Lacey is a 9 year old Labrador, and my first thoughts are: "cancer, death, pain, fear, anger"

2. When things are right, we never think of the worst.

Ex: The stock market rises over 26% in a 28 day period.

We think: "The worst is over. Everything will be okay again"

We may have FEAR, that it will fall again (lose our profits) or GREED (we should have bought more when the market was at 6400 not so long ago), and we may "talk" with others but in our hearts "the best is yet to come."

These are examples of our human and emotional perspective on what is. The only facts we have in either of the above situations is what we know so far. We do not know what we don't know (This is the most important statement we can make to ourselves).

Use these examples (from "My Dog is horribly sick" to "the bank stress test showed enough strength") all with that knowledge. You know only what you know, not what you do not know.

What is key here, and the lesson we must learn as traders is:

-We never appreciate how good it is when it is good. NEVER!

-When there is bad, or our perception of what is bad, we have a human need to create drama, which worsens with our emotions and creates negative attractions, making our behaviors and reactions work wrong.

New Ager's talk of the "law of attraction," a key and true element of focused thinking, but the reverse (the creation of drama, or the lack of "fear") is what we must watch as traders.


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We now know that the big bank consortium met with Geitner and softened the stress tests. We remain bearish only because we do not think the enormity of what we will have to spend is even understood by the American people. Trillions more will be budgeted and spent, and sadly, we think it has to happen.

A thought on how the cycle will move: A young person graduating from college or with an MBA is virtually assured of low wages, based on the what the market has "shifted to" (and industries have taken advantage of) in lowering of wages. The new "spender," who fuels our consumer price index, will have far less to "spend" than the last two generations, and the now bankrupt Baby Boomers may be the "servants" to the lower wage earners, and their own children. (A note from the webmaster... "But the children, most often, will be living in the house of their parents because they will not be able to afford their own ; ))

Yesterday we saw, before 3 p.m., a market drop to 8383, a classic support and resistance area now, and following that a market that simply hovered at 8450, the top resistance line, for several hours, up until the 3 p.m. hour. And by 4 p.m. the market had moved to 8370, which we've hit time and time again, and is our Dow projection line.

And, we made money. Watching futures no trader would have entered on the call, with futures over 90 points down near opening, and fluctuating valiantly to show negative bias. The May 430P, however, during whipsaw was available only slightly above prior day close, with buys as low as 8.00, and sells from 9.30 to 11.00, again all by 3 p.m., for a nicely profitable day trade. Puts were also available for tight day trades in the final hour.

Note: It is highly possible the market has short term bottomed. If this is true we could see a run up to our Dow projected TOPS and another downturn to the 8250 area.

There is No Reason the Market Should Continue Up

The Monday after Mother's Day the Dow was up 11 of the last 13 years. The Monday before May expiry the Dow was also up 18 of the last 20 years. Several weeks ago Floyd had a week of vendetta concerning our false perceptions of good and bad, and used the word "Fuck" regularly, teaching something about how we view things psychologically.

Today, I'll begin our alert with "Fuck, there is NO reason the market should continue to go up like this. It's dangerous". Long time subscriber MRK wrote me Friday to tell me it was time to get on my soapbox on inflated markets. As we all know, I am a believer in "not what should be, but what is," and not interpreting the market as "we want it to be."

Study this carefully for a bit of deflation on market tops:

http://www.ft.com/cms/s/0/158f174a-3bed-11de-acbc-00144feabdc0.html

(Cut and paste to your browser and read this article intently)

Our euphoric market hit 8627 in Friday's trading. Our Dow projections for last week showed highs of 8750 on the theoretical Dow as a "possible euphoric top." This is still possible, as is a run to 8867.

We see any drop that takes place from highs reached averaging 564 points from the highest high, which could put a bottom at 8250-8325.

The higher the market moves without consolidation the more suspect the longer term reality of the bias, if history has any say in what is occurring.

We did not trade calls Friday, seeing such a top, but the day trade on the May410P allowed many traders up to 1.25 per contract in "swings" around resistance lines during the day. The longer term hedge position on this option, however, was sold out at stop loss, our first in now 19 trades. The market is so over extended that no matter WHAT the bad news it continues to head up, perhaps a sign that shorts are continuing to cover their positions, but more likely that the "average Joe" investor ins piling in now, as typically the "average Joe" buys right at the top, after the market has been manipulated.

We don't care short term what the market will do, what is right or wrong, but only what "is" and what we "can make money off of".

But, FUCK, enough euphoria:) Get real, America, it's a mess out there. I promise: I'll stop swearing, but come on.....:)

This is a Resilient Market, But We Do Not Trust It

The Friday before Mother's Day the Dow was up 9 of the last 13 years. This is an historical fact. And, now I'll tell why I'm bearish. We've made great money on a series of calls, over 17 profitable trades now, with one stop loss coming on an open May410P. I bought this position because I saw 8350 as a top, and did not think our optimism could take 65 billion in additional stress test financing without teetering.

Puts finally began to show a bit of reality to the market yesterday, after hitting top tests again. This is a resilient market, but we do not trust it.

Jung proved me wrong. Carl Jung, the great Swiss psychiatrist, believed the stock market represents our "collective subconscious". Thusly, if we have a "pent up demand for optimism" based on an overreaction of too much fear after too much greed, it's easier to see the meteoric rise we've had.

The charts reflect the S &P 500, and at 925 I certainly see resistance. The standard chart shows a bearish rising wedge.

Watching the Dow, as we re-project each day, I see support and resistance lines coming together, another sign of a topping.

Lastly, happy as I am to take the many profits we've had with calls, this is too good to be true. Simply know that.

Yesterday we saw a market open to highs of 8617, allowing only tight fast profits for day traders on the May 425C, but allowed traders to enter on the May410 P as a new buy as low as 1.85 and sell to 4.50.

This all occurred prior to 3 p.m. EST. I've recently been writing summary before the final hour on purpose, to see how much the final hour affects trading, and if the electronic trading format is shifting the trading cycles to 9. 30 a.m. to 10.30 am. and 3.00 p.m. to 4.15 P.M.

I reworked the Dow projections at 10.30 a.m. yesterday with the moves in the market, and it was helpful to trade the May 410P as the market hit the pivot point, and progressed to near S2 before retreating. This allowed profits of up to 2.65 a contract, simply following support and resistance lines recalculated to the morning opening.

Trader MP, Advanced Mentoring, reports:

"Hey Floyd.....

I went with the 420 put instead of the the 410 from the alert...it was a bit less OTM

Bought this morning when the DOW was up 50 pts. at 8500 level...I bought ten contracts at 3.80....

Sold when the DOW hit your projected bottom of 8376 EXACTLY!!...sold for 8.30...

That is a $4500 profit in one day!!!

Can you imagine if I bought 20 contracts?

Is that how one becomes a millionaire trading the OEX?"

This Bank-Game is Being PLAYED

The FEDS calmly released data in advance yesterday on what the results of the stress test on the banks were, all to help the market on the upswing, and hitting new highs. So the Treasury and the Feds appear to not want to have jolted the market, but at 2.30 p.m. yesterday the street gossip showed that Wells Fargo needed 15 billion, Citi 10 billion, and Bank of America 35 billion. It will be interesting to see how this "changes" as the results are announced, but the market took this news as more proof of a rebounding economy.

Yesterday, before 3 p.m., we had a double top being broken, and top resistance lines. The market hit 8558 by 3.15 p.m., right near our projected tops. By 3.30 p.m. the market had moved back to 8450, the former top resistance line, and the end game was on.

Traders that took inventory to the May425 Call had to buy only 10% above prior day close, at 6.30, and could have sold again to highs of 8.80

We'll hold our hedge May410P through stop loss, on a likely turndown, but may take our first licking on this signal. Somehow, we feel this whole bank game is being "played," however, and more subtle truths may surprise the market still to the downside we see. We see overbought, nothing more.

Gold has been rising to new highs on the strength of the economy and signs of improvement, we suggest, and as nations are hoarding more Gold, watching to see if another foot will soon drop.

http://www.bloomberg.com/apps/news?pid=20602013&sid=aaf5J_tLFFtI&refer=commodity_futures

All of this bodes for more upside, and a recovering economy. It's good news, if fully accurate, that the banks are progressing. A healthy consolidation and more upside would further define that the bias is becoming established.

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Floydian Therapy:

The entire article The Circle of Chaos is available on our website:

There is only so much input any mind or body can take. We each have our overload points. There is the theory of entropy that simply states “the more we handle the more we can handle”, and it drives scientifically into the entire theory of chaos.

Floydian Therapy simplifies this.

Learn where your threshold is. Know when you hit overload. Learn how to stop yourself.

Sorry, it’s that simple. And it is easier to do than you think.



1. Figure out how much you do that you really don’t want to do to, and honestly don’t have to . This is the hard one. We spend much of our lives, I teach, doing what we do not want to do. Some of this we must do. (Clean the toilet, buy food). Some of it we do not have to do (Jerry did this, and Connie did that, and now Mary is mad at Jerry, and they want you to have dinner with Linda with them, and they are all tired of how this keeps happening)

2. Tell everyone you are not going to be in this circle of chaos, and say no. Recognize there are consequences to this decision, as there are to each decision we make, and know in advance how you will ACT, not react.

3. Find what chaos you simply do not handle well. To do this, go outside yourself (the silent witness) and watch YOU, and amuse yourself with what situations cause you chaos, which creates stress. And then, change or do not allow that chaos.

Much of our lives we build endurances. Some of these can be good, as in athletics and building strengths, or being “able to handle more,” but there is a point you must step back from yourself to watch the “input” that you are processing.

The human mind can only successfully process 5 to 6 things at one time.

As we “blackberryize” and “iPod” our lives with new input, with cell phones, and internet, note that this is more input, and that it can add to the circles of chaos that you are part of and create.

The solutions are in identification, and being able to “see yourself” out of yourself.

This method of silent witness is a way to detach yourself from your thoughts and actions to be able to see how you are really acting. It is much like making a list of every single thing you do for a day, something I recommend everyone do. Write down a single day, or better yet, a week, from the morning crap to the phone calls, meals, fights, and what drama took over your day, and how you acted to it.

This is the circle of chaos, of which you control the outset, and must be aware of foremost as a person.

Define your threshold and know your endurance. Work and live to what you WANT.

For more information about Floydian Therapy, contact us at floydiantherapy@gmail.com

An Opportunity to be Radical

The Latin definition of radical, which we think of as liberal, or "far removed" is actually "to the root of." What we are experiencing as a nation right now is an opportunity to be radical, and to see things differently.

Whether we accept this or not, and if we change from the financial crisis that we both created and befell us, will be our legacy.

Several comments from subscribers today I thought of value in our teaching:

1. From MR, Level 3


"I see through my notes and observations on self that I do have a tendency to believing data too much (focusing on the trees, but missing the forest) as the market shifts 100 points - not realizing a intraday calculation may be critical - and instead looking at it as sitting on R3 and ready to move back to the pivot..

Also, I've been taking virtual trades a bit too seriously. Getting stressed about... Nothing. Just because I want to do well does not mean I have to flip out.

I realized it's more important to get experience, observe market action, practice placing orders, get used to working efficiently within a streamlined/noise free platform (excell). It's not about "winning" at this point. It's about learning."

2. From BFE, Floydian Therapy, Level 3:

"I have begun making money trading options for the first time. For years I've made just enough to break even, after a year of high drama and fear, or fear and greed as you call it, in which I made my wife miserable, and began almost gambling. I subscribed to 4 services and could barely keep up.

You've gotten to the root of my issues, and I'm day trading like a King. I've paid for my subscription 10 fold emotionally."

3. From VP, Level 2:

Floyd, great call and put trades. I've been profitable now 12 straight, had 8 in a row before that, and two losses. I'm far ahead of the game. I really study the alert, and I like the changes you're making. Think we'll make money on these puts?"

4. From MEF, Level 3:

Your Dow projections are simply breathtaking, Floyd. I am learning to sell right to these projections,and to always leave a bit of money on the table. Your writing me the psychology stuff has really been helpful, even though I fought it for some time, but I am no longer "taking my life out" on the trade.

I'd recommend you to anyone.

5. From DF, Level 2 15 Day Trial

"Please cancel my service. I am looking for just the signal and buy point for 40% returns. This requires much too much of my time."


Yesterday was a classic stall, allowing nothing to happen. What is important is that upside beyond prior support lines did not hold, and the market faltered. We are revising our Dow projections today, after hitting five out of five target tops and bottoms. We believe something is up, and don't know if we'll see larger bumps to new highs, for an extraordinary rally, as high as 8750.....but consolidation should bring health to this rise if being predictable, which the market has not been being, and we could now see bottoms of 8150.

I will not project beyond a week or so, but see no signs of the strength to the market that is helping it rise. It's been great, and for those of us investing at Blue Chip Options in our core portfolio from 7500 and throughout the downturn, we've got some good returns on the "final 1/3" of inventory we had held through the downturn.

Few traders took inventory to the May425C, but it was available for up to 1.00 profits. We keep our open and new buy May410P as a hedge, and because we do not see enough bias in the market to safely justify call trading.

I would rather miss an opportunity to buy than gain an opportunity to lose. When the bank stress information is clearly stated to us we'll see just how much we need to capitalize, and just how fast it's working. My bet, much more capital, but that it is working.

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Floydian Therapy:

More on the Circle of Chaos:

As we “live” we remember what “was” (or our memory of it) and transition what we know to what we are doing, and assimilate more as we “are”. It is during this period of the present that our own circle of chaos begins. We each allow ourselves to live our work, our lives, and be in “dramas’. Most of these dramas do not need to be. Surely, “a brain tumor, or a broken leg” is a crisis, creates a drama. Other dramas that we so quickly enter the circle on only add to our thresholds of input. Every day we have these dramas: Mom needs medicine, Billy broke his toe, John is a meth addict and ripping the family apart, the pharmacy won’t fill the prescription-how you SEE each of these events defines the consequences, by how much drama you allow in it.


There is only so much input any mind or body can take. We each have our overload points. There is the theory of entropy that simply states “the more we handle the more we can handle”, and it drives scientifically into the entire theory of chaos.

Interested in learning how a transpersonal psychologist can work with you by email, for low fees? email : floydiantherapy@gmail.com

Not a Single Technique Caught the Market Downturn

We will lead today with our Dow Projections yesterday morning in the alert:

>> Market Rally-8450, former resistance, to 8550
(On 5/4 the market hit 8456 three times before 2.30 p.m.)
>>
>> Market Top-8326-8370-Classic Market Top
>>
>> Market Hesitancy-8250
>>
>> First Market Bottom-7950
>>
>> Projected low-7850
>>
>> Charts would show exhaustion taking place and the consolidation taking place first, but the market is optimistic, and the reverse could be true.
We saw low volume last week in the upside, and saw an exhaustive gap yesterday morning that many traders think is a sign of shorts covering. Housing data looked bleakly positive and the bull run continued.

Risk traders that took our suggestion for the May 425 were able to buy at less than 15% above prior day close, and sell to 80% returns same day.

Part of this optimism, which we think now a bit overly euphoric, may be from the "babble" that the bank stress tests will not come in bad later this week, and that the top 8450 resistance lines can be broken.

For traders truly wanting to understand just how charting, however, was unable to successfully predict the October meltdown we had last year I read an article quite detailed in its analysis, as it will clarify to you what Floyd always has said, "charting shows historical data and can be read emotionally, making it only a tool in trading"

Effectively this chartist study shows us that NOT one of the technical indicators we all use so well, with such faith, caught the market slide. This includes RSI, MACD, Wilde work, Bollingers, et al. When a true technical analysis was done, not a single "technique caught the market downturn".

In the summer of 2008 we sold 1/3 of our stock and bond holdings in Blue Chip Options (www.bluechipoptions.com)) at 14,100 tops (13,500 recommended sell) and a second 1/3 of our positions at 11,900.

My theory then that none of it made sense. I didn't believe any of the facts being presented, and things looked too good, and I believed it was time to "lock profits and always leave money on the table".

That left Blue Chip Options with only 1/3 of our holdings in stocks and bonds by October of last year, and we began aggressively adding to our existing new positions as the Dow hit 7400, and again on downturn.

I will not project for you more than a week. Our Dow projections are listed for 21 day periods, the maximum I believe any market can be "predicted", as the market is emotionally random, and it is happening in even shorter increments recently, 5 days.

Our May410P may be our first loss in 16 straight trades, but we'll hold it for stop loss, and as our hedge, and it's time is not up. We thought the downturn would take place before the upturn, but continue to see a consolidation day or two to spirit the market and lock profits. Things are too good, and they aren't really:)

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Floydian Therapy: Here's part of an article on our website called The Circle of Chaos:

There is such a thing as Chaos Theory, and I vaguely understand it. I also know that after entropy occurs there is often new growth. Simply put, once we’ve endured bunches of shit we get used to it and can endure more shit.

At Floydian Therapy we believe there are circles to actions, and that multiple people enter these circles.

Circles of Chaos, and all of us with different abilities to handle chaos; that is, we each as individuals have our own levels of endurance of just how much INPUT we can handle. All we get is input, from voice, to email to TV, and with people. You know the drill. The more you work and are closer to “on the grid” the more you have input.

Your ability to filter this input and how you deal with it defines the amount of “stress you feel”.

Stress is an emotion, not a physical condition. It becomes physiological in response, but begins with brain wave movements, all based on how one is handling input.

When we create or enter drama situations, the circle of chaos is immediate and all pervasive. You have been there, or you are there. Interaction within a circle of certain people is not just interaction, but drama. It tolls on you. This is a circle of chaos, and you are in it.

Most of us spend the majority of our time in the past, or the future. The present is not as real to us, even though we may think it is. We fill the present with “things, events, work, action, and input”, and during that time “remember” the past, or spend more time planning the future. We create scenarios around our FEARS, whatever they are, as we imagine the future, and build our present around what we want to not make happen in the future.

The Need for Money Will be Deeper

May is historically the second best Dow and S&P gain month, consistently since 1985. The Dow's gains last week is its 7th in 8 weeks, what looks to be a beginning of a bull rally.

We could see a sign up upside to lead the market , but the "holding up of the market" each day may falter this week.

But, the results of the bank stress test will be out this coming week, and more of the fraud will show, as the need for money will be deeper. There is also a lack of breadth in the bull run, with only 7 NYSE names making 52 week highs, while four hit new lows, showing exhaustion in the market.

If Citi is said to need up to 10 billion, remember the "good month" that raised the market earlier when the Citi CEO led the market with false optimism and projection. Study the Dow projections carefully, and let's continue an incredible winning run of 14 for 14 options profitable.

Top Reversal

The first trading day in May the market has been up 9 of the last 11 years. We've seen a great end run to April, with the Dow hitting tops of 8347.51. As the market hit this, top reversal began. Traders took inventory to the May 410P at the 8250 area, or 9.70, and were able to sell to highs of 12.708 again by 3 p.m. We'll keep this an open signal.

The May400P, however, hit it's top profit goals and was closed yesterday, selling to 8.90, near our 9.40 top. It was also available as a day trade for 1.50 per contract.

Note here we were selling puts during a market that showed futures at all time highs and a huge run up right to our Dow projection tops.

You'll see, if a student of Point and Figure charting, that the next resistance line is 8450, not hit for quite some time. We see consolidation now taking place, and note that each consolidation recently has shown higher higher and lower lows, and that we are above the 50 day moving average. All signs of a stronger bull market, if healthy consolidation, or the return of upside.

Floyd remains cynical and in our www.bluechipoption.com service has been trading calls successfully on a number of issues, and buying value stocks on downturns. Optimistic, but suspicious of the volatility, of Gold shifting its link with the USD. In Blue Chip Options we are shorting the Treasury also, as the worst of the banking crisis we do not believe over, with 5 of the 11 on the stress test requiring more cash.....more, GM closing 2900 dealerships across the U.S., or Chrysler going bankrupt. Not all the news is good, and the job situation in the U.S. is grim.

We continue to not "get it". Spector moving to the Democratic Party may truly help with unity, as will Franken's win, and we can watch the GOP disintegrate from their fractional infighting. It's quite fun to watch after the years of the Bush bluster. Our stake in the world is increasing. The U.S. is gaining respect in the world community, and we will need it to muster through the spiderweb of the financial "goat rodeo."

We've had some exceptional profits, traders, day after day, and we'll keep open with our one put at this time, anticipating downturn. And no, no calls....we'lll not risk it. If we see an intraday trade or premarket change our mind we'll advise.

Floyd Tip of Day: Limit input. Read Bloomberg online, and nothing more. Just explore this site. Learn the news without bias, and with a "business slant".

Stop reading or watching any slanted (Limbaugh, New York Times, Fox News,etc) and just gain basic Bloomberg information. Quit listening to opinion on large issues that are not fully fact set to you, or you are wasting your energy.



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Floydian Therapy:

Seeing the Background of Life

I teach to view the audience, not be in the audience.

This means while you are “there” be in the “all” of there so you can see and experience others, and not just yourself “waiting to perform”, or “be noticed” or “do what the boss wants."

It is the same as seeing background. Next time you are watching a favorite TV show watch only the background. Some is “real”, some is obviously a “set’, and some will even surprise you more, that you are looking at dim hues and colored walls.

I often watch TV this way to hone in on what is. The overall event of the show precludes the “effect” that is part of what makes the overall effect.

This is true in “being the audience, not being in the audience”. When I am consulting for a large group, or giving a speech, I like to “be in the audience” to “see the audience” and “view the people.” I do this when I am consulting. Simply listening, and taking notes.

The very act of saying little and taking notes helps people to truly show themselves.

This is also true in index option stock trading. It is true in managing a business, or being a salesperson, or running a household.

As I practice “simply watching” or mindfulness, a Buddhist practice, there is a way to hone this meditative practice to the moment of “what is happening” and how you fit within it.

If interested in learning more about our transpersonal approach and “real time therapy”, contact us at
floydiantherapy@gmail.com