Yesterday we saw classic flat lining for most of the day as the market hesitated before the magic 000's, a number Fibonnaci taught us always causes resistance. The market top was at 9958 before 3:10 p.m., and then began dropping.
There is such resilience within this market that as the market tops, we suggest, and now alter our Dow projections, that sell off/consolidation could be lighter, to a higher low, before more upside. The market "appears" poised for more and more upside, and charts even make October look good.
For traders that took new positions to our puts, the Oct480P was profitable up to 1.40 a contract, and the Oct500P profitable up to 3.00 a contract. For traders that already had a first position, a second and larger buy should have been made at 9950 as we hit it yesterday. And, we hit the jackpot on the Oct500 Call again, buying below prior day close (5.80) and selling to as high as 8.20.
Near the end of the day the new buyer to puts, if holding longer term, began to handsomely profit as the market dropped 54 points.
The put traders made their money as the market fell apart near the end of day, the second time the PPT appears to have been on vacation!
We'll hold the puts, and issue a higher risk call day trade for those that can see a market tipping past 10,000.
Subscriber CA wrote:
You asked us to look for 9950 but I just bought at 3.80 and sold at 6.10 for one contract. I was wondering if your brain is an unique and predictable. I was puzzled myself why market was rejected on Fed rate and it came down. I thought market would be happy with the red rate decision. Please explain why the market became negative.
You are an excellent teacher I have had ever seen. I am still learning your unique teaching everyday. Superb teacher. I admire it.
Thanks,
Floyd's answer: The magic 000's are part of it, and the FEDS mentioned the word inflation. We are simply at market tops that have been driven up very quickly.
On Monday I wrote Blue Chip Option, our sister service, subscribers and posted a blog that I think should be a key read in understanding how the economy is really doing.
So, direct from www.bluechipoptions.com:
Floydian Theory on Okun's Law-THIS IS AN IMPORTANT STOCK READ
The economist Arthur Okun first formulated the theory that says "when the economy grows, it produces jobs at a predictable rate, and if it shrinks, it sheds them at a similar regular pace.
Joshua Ramo has an excellent article in Time Magazine. Cut and paste to your browser and really study, as Mr. Ramo explains the unusual predicament we are in, in that the economy is growing, but unemployment is not shrinking.
http://www.time.com/time/business/article/0,8599,1921439,00.html
As you complete the article, and think out Okun's Rule of Thumb, we are perhaps truly in a shift within our nation, with more unemployed than ever before, and for a much longer time.
As a business consultant for many years I could visually watch the layers of management at firms that were unnecessary, and that many companies were simply not productive with their employees.
We all know this. With the Cash for Clunkers it was 4 for 5 American cars clunked in, and 4 for 5 new cars being bought Japanese.
Walmart is China, and doing well, so it appears we are not willing to stuff. Trade tariff discussions are already starting.
I believe Obama's stimulus package has held us steady so far, and that the market is now naturally producing its Fib retracement , some on good news, some on hope, but most of our rise has been
as pre-indicater of what the economy should become. The market precedes the general economy. The issue of healthcare will be resolved, in a way I think that will define really what kind of nation we are, one led by anger and fear tactics, or one that can be bi-partisan and represent all the people, without the lobbyists that lead our world.
Wall Street has been warned. Regulations are not yet in place, and many schemes are already being hatched. We have to watch for this, as many predict there are more "hidden numbers" that will become clear as the high unemployment hits the GDP, and hits our taxes, as there will then again be more subsidies. Stimulus some believe may need a second phase.
My point in Okun's "Law" is that his extraordinary "obvious" theorem "should be" right, but some tides are turning, or we are modifying the theory.
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