Many of our new subscribers on our 30 day trial are writing with questions about pivot/support and resistance. Because these traders do not have access to our OEX Manual or online videos yet, during their trial, I'll try to simplify many questions, that might help clarify for all of us:
1. The pivot/support and resistance on "large move days" will appear "far" from where the market closed. This is normal. This is yet another reason, if trading around S/R, to recalculate the Dow or the OEX during the trading day.
2. The core purpose of pivot/S/R is to show you where the market will "hesitate".
3. At OEX we provide a number of ways to enter a signal, and it is important traders review the methods we offer. When one enters at "best buy," for example, they will be entering at s1 or r1 area, waiting for a retracement.
As an example if the option closed at 9.00 and we suggest buying at 7.40 on "best buy" we are suggesting one buy at near R1, and expect a larger second buy (if necessary) at a 33% discount to buy one, which would be typically at r3/s3, depending upon the circumstances.
We highly recommend trial subscribers write to us regularly with questions until you become full time subscribers and gain access to all of our materials.
Money can be be made in all markets. Please remember Monday, when we had a 200 point run bi-directionally during the day, from new subscriber, but veteran trader JCR:
> "Floyd---what a day it was for me. Let me tell you what I mean. I received your premarket alert, I looked it over carefully. And, after thinking it over, I thought...well, on Monday there's either gonna be a continuation of Friday's modest move up, or there's gonna be some consolidation, in which case there was gonna be some money being taken off the table, hence I'd be looking to buy some Puts. O.k. In comes your premarket report and confirms just what I'm thinking. Fine. I tuned into CNBC to check the futures and what do I see(?)---UGLY! Alright. Your signal regarding the June 430 Puts was on the money. Now I'm getting a little antsy...I wanna trade but I don't want to force it (like I used to in the past). So I wait, the market opens on the downside and I'm ready to pull the trigger on those 430's. The market starts run, the adrenaline begins to kick in, I'm trying to stay cool but it's been a while since I've traded and I don't want to make the same mistakes I've made in the past, like chasing a trade. I'm proud to tell you that I didn't chase it , and my attitude was nearly neutral in that I didn't beat myself up over missing my entry point. Now, I have to reevaluate what it is that I'm gonna do, and I know that I'm not going play anything to far out-of-the-money, knowing that I need to play an option with the highest delta that I can afford (this is how I'm thinking). So, I start to follow the 445 Calls, I kept seeing the bid running back and forth between 2.85 and 3.20. The option dips back to below 3.00. I looked to execute the trade but I kept entering it incorrectly and a window kept popping up telling me that I had insufficient funds...of course this was ridiculous. The problem, it turns out, was that I failed to type-in the decimal point. Man...can you believe this? O.K. By the time I entered the order correctly, I paid 3.50---I was betting on a retracement, that if it were to occur, it would happen late in the day. Ahh. Patience.
>
> At about 3'ish, the market begins to show signs of a reversal---I see it running, I continue to refresh my page so that I can see what's up and I end up getting out at 4.60 for ten contracts. And yes, I did have exit price on both ends. I truly earned that $1.10. The take home message is simply that your signals were on the money. I can't wait to hear what you have to say about tomorrow(?) Until then, you have a good night. Bye for now :)"
Floyd comment: JCR traded the system, not the option, the key to how true trading can work.
Now, let's remember yesterday. Trader DS summed it up well:
"It is amazing watching the market today – in terms of “breathing” as you teach. You can tell its just gasping for air to the upside with every ounce of strength that it has to go higher. The bulls are fighting to the death here. Am I seeing this correctly? There is downward pressure you can tell but not heavy selling pressure here – almost like its just run out of gas and what’s next? The calm before the storm.
A quick question… Sometimes I notice that even if the count favors a bias the signal may be for an option the opposing direction – what is it that influences this?"
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To answer DS, and to explain what we saw yesterday in a flat lining wall that moved the market from a low of 8685 to a high of 8843 is a classic example of a market hesitating to the upside, and WHY we have watched the bias count recently and felt it unreliable.
Traders were able to profit tight $1.00 profits on the call, if they could move fast enough, and puts were available at good buys for day trades. I was not online today, but while traveling watched the market gyrate enough to allow any day trader to re-calculate the Dow or OEX and play for tight profits.
So what's next? A bias count of 0, meaning no clear direction, and a vastly overbought market. We'll sit it out today with just our open puts, and with the struggle to gain profits to any OTM call we'll refrain from a new position, as we think any ITM call may be too high risk for June expiry, and the market simply too uncertain.
Travelers and Cisco have replaced Citi and GM in the Dow. This was "edged" in on June 8th. The move really shows the depths of this depression, that two stalwarts of society have lost their name. Sadly, deserved.
In July 2008 Oil was nearly $150.00 a barrel. In late April 2009 it stood at $50.00, and has recently moved back up to the $60.00 range. And now....
Many talking heads believe oil rising is a sign of the global recession losing its’ grip, but it’s really supply and demand, and nothing more. We have a glut of product because of prior lower demand, and OPEC is struggling to control the price.
The current slackness truly in energy markets will last no longer than it takes for the global economy to truly recover, and we see oil as a commodity in which, yet again, the world has had little forethought. The current run to “hybrid” cars uses electricity to create the battery, which uses oil, and we’ve yet discussed “discarding” batteries.
It is much like our run at ethanol, only to discover what it did with the price of corn.
The International Energy Agency (IEA), the energy watchdog for the world, says a lack of investment in new sources of oil risks a supply crunch worse than the problems that pushed prices to just under $150.00
This watchdog agency found “that production form 800 of the world’s producing fields was declining at an annual 6.7%, and at an accelerating rate. This means 45 million barrels a day would have to be found and tapped in the next 22 years simply to meet an unchanged world demand.”
The IEA states "demand is expected to rise from 85 million barrels per day last year to 106 million in 2030."
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Dividends are declining at the fastest rate since 1999 in Europe. Just give the U.S. time to have our corporations, with lowered to no profits, begin to cut even more dividends. It's a bad sign.
Floyd sees dividends as "bribes" from a company to "stay with them." They are saying, "if you buy our stock we will pay you back X% a year on top of appreciation, please stay with us."
This can also be said as "hey buddy, I'll give you 3% kickback if you buy this stock". All is not as it sounds, or appears.
What does this mean to Floydian thinking?
1. We are idiots and have no idea what we are doing in understanding how oil controls us.
2. Lobbyists fight our efforts to “be smart."
3. Oil is going to go up in price.
4. There will likely be a hurricane, or a scare, that will hit pipelines. FEAR will abound.
5. Some idiots will begin to think everything is better, that we are “out of the woods” (we are not even NEAR the woods yet), and create more demand, supply will be used up, and no forethought will take place to increased refinery production, or alternatives to oil.
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