Buying Against The Trend

The market opened with negative futures, and a nice drop down. First, let's teach a bit. Our new trade, July 415 Call, was available at best buy, as low as 14.30 in early trading, and experienced traders bought in, to sell as high as 18.30 by 1.45 p.m. in the afternoon, near our top sell of 19.40. This was a perfect example of buying "against the trend," on a no bias count, and profiting hugely.

Other traders had sold the July 415 Put to 9.30 profitably the day before, but for traders that had held for higher profits a larger second buy would have been made yesterday on this position. With a new buy, the # of days begins again the following day, and using our 4 day stop loss, we'd now hold this trade through Wednesday of next week.

Traders that profited well yesterday would have recalculated the Dow or the OEX at least once or twice during the day. As an example, the Dow hit a recalculated drop and a new r1 of 8440 in the afternoon.

And from a trader doing this on the OEX:

Hi Floyd,

I just did a recalculation on OEX using high 430 and low 419 and got the R1 at 427.69 and R2 at 434.35 and since the market has now dropped from the high 430 to 428 so and trading in between R1 and R2, does it mean R1 is now a support level? Because resistance becomes Support once it was broken up?

Thanks
Ken

The answer to Ken was yes.

Support and resistance lines, simply put, are historical areas where the stock, option, or market has "stopped before." Point and Figure charts show the clearest view of supply and demand, which regulates the oversold or overbought characteristics of the market. The market is always moving to, or is at, an overbought or oversold condition.

When a downtrend reverses it means the market has hit a support line that held, and it begins to move UP. As it does (stock, market, or option) it hits various resistance lines where historically the market had "held, hesitated, or crossed" before.

Many of our subscribers question me when I write "support now becomes resistance"; this means the role has reversed. For example, when a support level is broken it begins acting as its own resistance, and when the market moves up the resistance lines are acting as support for the market to go up.

Simply watch the market breathe. It tells you what to do. The market ALWAYS establishes support and resistance lines. At www.bluechipoptions.com we teach how to use S/R as a way to know when to buy long, and when to have a stop loss at a near support line, in case a breakout does not occur.

Part of trading is learning when to profit, and when to lose.

Now, for several questions from subscribers:
1. Is it a viable practice to "read the tape" at different intervals through the day to get a feel for changing bias through the day?
ex: 12:32 and 12:35 or when the market approaches a support/resistance line?

Floyd-No. the 9.32 and 9.35 is an old Wall Street trick, long before the advent of computers, and was a way of reading the tape for the morning bias. It still works.

2. I am starting to trust Dorsey's (from the Point and Figure Book we recommend) indicators more. I follow the Technical Indicator Report as one of the main pieces of feedback on market climate.

We saw the NYSE BP change in mid march from below 30 - which was a good buy signal for the bottom (it was about my second week of studying P/F and i was too scared to buy till mid April)

Recently we saw the NYSE BP drop from above 70 - a bear alert, if not a sell signal.

NYSE Momentum dropped below 30, and the NYSE 10 week is dropping like a rock.

Do you use these in your market/trend analysis at all?

Do these tend to be lagging indicators rather than leading as with the classic P/F which gives us S/R lines to look forward to?

Floyd-Yes, I use all parts of Point and Figure Charting, and we study bullish percentages, and we also do various versions of charting the same Point and Figure. We cover a great deal of this in our 130 page OEX Manual.
Point and Figure charting is supply and demand based, so never lagging. You are simply seeing a "picture" of who is buying and selling.

3. I was reading in the manual about selecting an option last weekend.

Browsing through the book I can't find the specific passage now, but I remember that we are looking for a delta of about .75 or so, and good volume.

Along with bias (when the market shows bias) what do we look for when selecting an option to watch?

Floyd- I use a simple system, believing the choice of option is not nearly as important as the condition of the market. Delta is not relevant to me. I look for heavy volume in OTM, and lighter volume in ITM.

I look for "strike points" that are near support or resistance lines

4. Dear Floyd,
Thank you for letting folks like myself try out OEXOptions for free. I sent my e-mail address on June 23 and I received the June 24 signals promptly. I may need more than 30 days to get the hang of your method as I feel I need to learn the language by which you communicate. I am not saying the problem is with you. It is with me. I need to learn a lot to be able to comprehend the market and how you are approaching it.

There were two signals I received for June 24: one to buy a July 415 put and the other to buy a July 415 call. Is this a strangle option trade?

When you say "Sell to 13.40-14.90 or tight profits," are you talking about a target price for the put option? The same when you say "Sell to 14.60-15.40" for the call option?

I am embarassed to ask but I need clarification to be able to know what to do when you say "# of days stop loss. Two buys expected."

And, for this e-mail, lastly, is there a place in the Internet where one can get the information on option prices Last, Open, Day High, Day Low and Previous Close? I have not seen any on the option chains.

Thank you again.

Floyd-This is from one of our 30 day free trial subscribers that do not gain entry to the password protected area of the websites where we have the complete manual, and all the videos from Floyd.

Trial subscribers are simply receiving our alerts and an introductory video showing them a "bit of what we do." So to answer the questions.

-Our positions when dual trades are a form of a strangle/straddle. We try to profit both ways, holding one position longer.
-When we give "selling prices" for the options we recommend these are the TOP prices we recommend. Many traders day trade or sell for tighter profits
-# of days stop loss refers to our simple rules:

The day after you buy an option is the "first day....and you count 4 days from there. This is the stop loss."

If you make a second buy on the option (part of the method we teach) the buy is twice as large as the first buy, and the cost is averaged by you. You then sell for 19 to 30% profits, or to the top sells we recommend each day for open signals. If a second buy is made the first day of the count begins again, on the day after you make the second buy.