Another Profitable Day on OEX

Another profitable day at OEX. Easy to trade, and great returns.

An interesting commentary from a trader in the market, and his view of the "now valuable USD":

"Every analysis needs a reference from which to assess other´s opinions and sentiments. Here are my reference points:

Yields on treasuries will give me an idea of the perceived risk of owning US dollar denominated assets.
LIBOR will give me a good idea of how well banks trust each other´s financial health.
TED spread will give me a good idea of the amount of liquidity in the banking system (during the height of the crisis it went to over 400 basis points)
OIS - LIBOR spread will give me a good idea of the amount of liquidity in the world´s financial system ( during the crisis it too went to over 400 basis points)

You know that when LIBOR, TED and OIS - LIBOR move up that the percieved risk of liquidity shortages and bank defaults is rising and you will know where the DOW will head.

If the yields on treasuries continue upwards with their recent high volatility then you know that interest rates are sure to go up and you know where the DOW is heading.

Pretty simple really. Last year as defaults increased on home loans etc the banks ran into a liquidity problem and they started hoarding cash saving it in treasuries causing the dollar to move up on the USDX. The Fed came to the rescue with all kinds of new liquidity to save the banks and TED and OIS-LIBOR and LIBOR moved back down. But now we have yields on the short end of the treasury yield curve going nuts as investors mistrust the dollar because of all of the essentially uncollaterilized new dollars created with many trillions more to be created in the next year. So fear of dollars is rising, risk perception increasing so yields are going nuts with interest rates sure to rise. If the risk of owning dollars is perceived to be extremely high we might see the absurd situation where the Fed rate is zero but interest on 30 year mortgages over 10%. Talk about a distorted economy. And people still want to play in this market? It´s nuts. "

We discussed yesterday if this is a bull market cyclically or secularly. These are important distinctions. On Monday we saw below average volume lead the market down 187 points, right to the 8550 support line we suggested might short term hold the market. Students of Ned Davis Research show that secular bear markets run 13 to 16 years. Within those cycles are many cyclical ups and downs. The bottom line to secular vs. cyclical is that IF we are in a true rally it has a year to run, and already half of a year has taken place. Gains in cyclical bull markets average 64% and are generally over within a year and half.

Davis says the rise in stocks since March 9th qualify as a bull market, but still sees price to earning ratios, and didn't see market valuations fall far enough during the sell off.

The majority of institutional traders do not believe we are in a long term bull run, but the euphoria may overtake any logic.

Yesterday we saw stumbling before retreat at about 2.00 p.m. In recalculating the Dow support lines at 2.00 p.m. 8541 was s1, and you'll note that this area is strong strong support, as we saw Monday.

The market dipped just below it to 8510, and hesitated. In our new Dow projections I also saw the next support line, s2, now at 8470 (note how close this is to my own longer term projection lines)

Remember, we are trading short periods of time, playing our inventory against another person's inventory (see: http://www.oexoptions.com/pages/fruit.html ).

From trader SW, summing up how he traded yesterday:

"Floyd, in at opening noting tight futures and your comments on risk I waited out the July420P, and bought it at 8.70. Sold at 10.80 by 2 p.m. I recalculated the Dow midday and saw that the new s1 for the Dow was 8541.12, so I just sold out. I made 2.10 a contract, a respectable 24% in a few hours, and simply waited the rest of the day out.

I've learned most from you to follow the Dow projections, limit my input, and simply play the support and resistance lines carefully. You continue to impress me as a teacher."

From a level 3 subscriber working with me on the OEX Manual, and going through the videos on the website:

"Floyd, this was the best. Got in on the J420P at 9.00, and sold it at 11.00, made 2.00. I am amazed at this dow stuff. i'm still watching the videos on this, but you are using intuition and data to give us startling predictions"